South Africa’s economy is in a recession and coronavirus threatens to send us into a full-scale depression with unprecedented job losses and devastating runs on pension funds, especially in risk sectors like mining, manufacturing, agriculture, tourism, hospitality, tourism and aviation. The SARB’s monetary policy committee is meeting on Thursday 19 March to review the prime lending rate.
Monetary policy the domain of the Reserve Bank has a profound impact on the South African economic environment and the ability of the country to meet its development goals. Monetary policy influences the conditions under which the private financial sector can create credit, it determines the growth rate of the money supply and the level of interest rate.
This interest rate, perhaps the most influential price in the economy, then impacts on core areas of economic activity -aggregate demand, investment, inflation, and the sustainability of the public sector. This means that they decide the amount of money that is lent out, to whom and for what purpose, therefore holding the power to reshape the economic landscape that affects us all. The reserve bank, therefore, has a responsibility to regulate this creation of the new money supply and this is very critical during this period of economic crisis. Determination of monetary policy is therefore not a purely technical question but has profound implications for all aspects of economic life.
The US, Russia and other countries’ reserve banks have moved decisively to slash interest rates. The SARB needs to show similar leadership and decisiveness. It needs to cut the prime lending rate by at least 100 basis points tomorrow and a further 100 BP cut in April depending on the economic situation.
Anything less will be insufficient and in fact, may provoke a run on the market and further decimate pension and investment funds. A 50 or 25 BP cut will simply not be enough. It will be tantamount to a plaster for a head wound.
Equally the commercial banks must now come to the party. They have to drastically slash lending rates. They must do so now. There is simply no time to waste. The banks are sitting on R7 trillion worth of assets. They have space to help save the economy, jobs, and pensions.
Lastly, commercial banks can play a decisive role by offering a one (1) to three (3) month loan payment deferment holiday for all loans, in particular for working- and middle-class families and at-risk companies and industries.
Italy, France and other industrialised economies have announced such decisive and progressive measures. This would be the most decisive and immediate jolt to the economy. It would provide immediate relief to all households and industries and not be subject to endless government bureaucracy. It’s affordable given the resources available to the financial sector and would simply be a temporary deferment.
This economic crisis is unprecedented and requires bold, creative and decisive interventions to ensure the survival of the entire economy. Anything less will be tantamount to economic suicide.
Issued by COSATU
Sizwe Pamla (Cosatu National Spokesperson)
Tel: 011 339 4911
Fax: 011 339 5080
Cell: 060 975 6794