The Congress of South African Trade Unions (COSATU) has noted the South African Reserve Bank’s decision to increase the repo rate by 50 basis points. The Federation has historically been critical of the consecutive repo rate increases and the monetary policy committee’s fixation with high repo rates. Even though high-interest rates counter the rise of inflation, they simultaneously add economic pressures on working-class households.
The Federation has additionally emphasized the negative impacts on small business development and job creation. Raising interest rates will only worsen unemployment over and above the current realities of low growth and energy insecurity.
The latest 50 basis points increase in the repo rate is in response to the 25 basis points hike by the US federal reserve. The latest rounds of rate hikes are a testament that the federal reserve has become a monetary superpower that dictates global monetary conditions to emerging economies like South Africa, which have a limited mandate of price stability.
The Federation appreciates that price stability is important. Higher inflation rates become an impediment for industries in productive sectors as inflation becomes a huge driver of costs. However, price stability through inflation targeting cannot be the sole focus of the South African reserve bank, especially for a country with such high levels of structural unemployment and underemployment.
The US federal reserve, considered the most powerful federal reserve in the global economy, has a dual mandate of domestic price stability and employment maximization as the central objective that drives its actions. This is because the world’s most developed countries recognize that monetary policy plays an important role in the growth and development of their countries.
The sole mandate of the SARB creates a negative growth environment that limits employment growth. The best way to address this is for the SARB to have a wider scope than just price stability, in fact, the SARB should implement several monetary policy tools. Several ideas, for example, include encouraging banks to lend more money to employment-generating industries as a mechanism to boost job creation.
The Federation favours an approach that incorporates both the developmental imperatives and the protection of the currency because these are mutually reinforcing rather than contradictory A monetary policy that injects the right amount of liquidity into an ailing economy is necessary, especially in an extremely financialised and globalized system.
Issued by COSATU
Sizwe Pamla (Cosatu National Spokesperson)
Tel: 011 339 4911
Cell: 060 975 6794