The Congress of South African Trade Unions (COSATU) notes with deep disappointment, the South African Reserve Bank’s painful decision to increase the repo rate by 25 basis points.

Home loans and other debt linked to the repo rate will now become even more expensive and difficult to service for millions of struggling workers.  It will squeeze workers’ badly overstretched wages further.  It will take money out of an already weak economy.

Workers are battling to cope with massive increases in the costs of living, in particular the 50% and 25% increases in diesel and petrol prices due to the reckless war in the Persian Gulf, the source of 20% of the world’s oil and gas supplies.  Working- and middle-class families have felt the pain with subsequent taxi and bus fare increases as well as above inflation electricity tariff hikes. 

Most workers are drowning in debt and borrowing simply to pay for food, electricity and transport and service unaffordable debt.  Those fortunate to have jobs support many unemployed relatives.  Many workers spend up to 40% of their already meagre wages on transport.

The cause of the current rise in inflation is solely due to the war in the Middle East and not domestic demand.  There is nothing that South Africa can do to end this geo-political crisis.  Squeezing already struggling workers and consumers makes no economic sense.  It is tantamount to punishing the victims for a crisis not of their making and over which they have no influence.

The economy has been stagnant at 1% for more than a decade.  Initial growth projections of an already anemic 1.4% have been slashed to a depressing 1.2%, far below the 3% plus needed to tackle our single greatest national crisis, our 43.8% unemployment rate.  The repo rate will further suffocate an economy on its knees.

Inflation at 4.4% remains within the Reserve Bank’s target range, with food inflation falling.  Prior to the war in the Middle East it had been continuously declining.  Once the war ends and international oil and gas supplies resume to full capacity, domestic fuel prices and thus inflation will fall. 

It is critical that Treasury reconsider and revive fuel levy relief for the duration of the War and until fuel prices revert to their pre-war levels.  This relief provided valuable comfort, albeit however limited, to commuters and the economy.  It helped contain inflation.  Its extension is now even more critical.

The Reserve Bank must resist further insensitive temptations to raise the repo rate.  These would be a devastating blow to workers, consumers, businesses and the economy, when we can least afford it.  It must exercise strategic patience, more so as we hope sanity will prevail and bring negotiations to end the War.  The Reserve Bank must show solidarity with workers, the poor and the economy and avoid further hikes.

Issued by COSATU

Matthew Parks (COSATU Parliamentary Coordinator)

Mobile: 082 785 0687

Email: matthew@cosatu.org.za