Faizel Patel
Senior Digital Journalist
2 minute read
22 Jul 2022
1:50 pm

Reserve Bank becoming reckless on interest rates – Cosatu

Faizel Patel

The repo rate was increased by 75 basis points on Thursday, a day after it was announced that inflation is at its highest since 2009.

Photo: Twitter

Trade union federation Cosatu says the South African Reserve Bank (Sarb) is moving from being tolerably assertive to becoming overzealously reckless on interest rates.

This comes after the repo rate was increased by 75 basis points, a day after it was announced that inflation is at its highest since 2009.

Reserve Bank Governor, Lesetja Kganyago, announced the hike on Thursday, which is expected to impact heavily on South Africans with debt.

ALSO READ: Biggest interest rate hike since 2002 to drain South Africans’ pockets

The latest hike brings the repo rate up to 5.5% and the prime rate to 9%.

This is the steepest hike since 2002, when the Sarb increased the repo rate by 75 basis points.

Speaking to The Citizen, Cosatu spokesperson, Sizwe Pamla, says while they appreciate the need to keep inflation check, which is expected to have an impact on workers and repeal their wage increases, to continue to use the monetary policy to deal with high inflation is both “naïve and reckless”.

“It’s going to depress the demand domestically when some of these issues are aren’t necessarily the responsibility of National Treasury. So, for the Reserve Bank to continue to claim that it has tools in its tool kit to fix the inflation is a little bit naïve and reckless.”

Pamla says National Treasury, working with other governments at a geopolitical level, can intervene in the high cost of fuel and wheat prices due to Russia’s ongoing war in the Ukraine.

“But to recklessly increase the repo rate by 75 basis points when you are saying you are trying to manage inflation, you can’t manage inflation on the use of the monetary policy, you can only do the opposite.”

“They are going to punish people who are currently paying their debt, they are going to punish businesses that are meant to be expanding and building their operations. If people spend money on servicing their debt, it means those individuals are not spending on the economy because they don’t have anything to spend, then they are depressing the demand,” said Pamla.

Pamla says National Treasury will also feel the pinch when it delivers its Medium-Term Budget Statement (MTBS) in October.

ALSO READ: Inflation rate of 7.4% means consumers must prepare for repo rate headache