COSATU is shocked by the Reserve Bank’s monetary committee decision to increase the repo rate by 25 basis point to 6.75%. This decision will cause direct harm to working people and the poor, above all by further slowing economic growth and employment creation.
The motivation to increase the interest rates does not make economic sense. Firstly, inflation at 5.1% is well within SARB’s inflation target range of 3% to 6%. Secondly, inflation is likely to drop in December with the anticipated significant drop of approximately 10% in the fuel price. Thirdly, how does squeezing struggling workers and businesses of their last few Rands and cents help grow the economy out of the devastating recession?
The federation condemns this decision because it means that the Cost of Debt or credit is going to go up and all those who have housing bonds or any debt for that matter can now expect to pay more unless their bonds/loans are on a fixed interest rate.
The Reserve Bank is supposed to serve our people but instead, it has become a harsh master and its decisions continue to contribute to joblessness and worsening poverty. Unemployment remains far above international norms and today, one in three South African workers who wants paid work cannot find it, and two out of three Africans under the age of 30 are unemployed.
This is another proof that our reserve bank is currently only notionally independent as it continues to subscribe to the dominant and conventional but failing policies received from finance capital – even at the expense of real producers of wealth in mining and manufacturing. The reserve bank is too beholden to the interests of finance capital to have an impact on the broader economy.
South Africa has already attracted far too much in the way of short-run, speculative investment from overseas, adding to overall economic instability and pushing up the value of the currency at the cost of growth in industry.
It is true that inflation erodes the buying power of money and without diluting the dangers of high inflation rates; we argue that most workers would prefer jobs than low inflation.
When interest rates are increased to reduce inflation people who rely on wages as a form of income suffer the most because they find it difficult to afford paying back installments on credit cards and house bonds, and small businesses find it difficult to obtain credit to expand their operations.
If companies cannot service their debts because of high interest payments they normally cut down on the costs of doing business by cutting wages and laying off workers.
As workers, we favour an approach that incorporates both the developmental imperatives and also protects the currency. These are mutually reinforcing rather than contradictory. As argued by Joseph Stiglitz in his book The Price of Inequality, focusing on inflation is wrong when a large part of the cause of inflation is imported in the form oil prices and food prices and when the only beneficiaries of this policy are bond holders.
The current policy of low inflation has entrenched apartheid economic policy of separate development, income and asset inequalities. An ordinary person without a job would prefer a job over inflation. Better some job whose pay has declined in real terms by a few percent than no job. Low inflation has resulted in financial instability recession, layoffs and no job security.
In addition to targeting employment the reserve bank should align its policy to industrial development, introduce foreign exchange controls, and impose quantitative controls on commercial banks to ensure that a quarter of their loans go to priority sectors that drive the growth path and create jobs on a larger scale.
Issued by COSATU
Sizwe Pamla (COSATU National Spokesperson)
Tel: 011 339 4911
Fax: 011 339 5080
Cell: 060 975 679