COSATU angry at interest rate increase
The Congress of South African Trade Unions is bitterly disappointed at the decision of the Reserve Bank's monetary policy committee (MPC) on 17 July 2014 to increase interest rates by 25 basis points to 5.75%. This is the second increase this year, after rates were increased by 50 basis points in January.
This decision will mean that more small business will have to close and fewer new ones get started, as the cost of raising and repaying loans goes up. More jobs will be lost and fewer new one created. Unemployment will either remain at its outrageous level of 34.1% by the more accurate expanded definition or rise even further.
It seems that the Reserve Bank and its governor Gill Marcus are oblivious to the expansionist economic and employment-creating policies adopted by the African National Congress and being implemented by government departments. They are blithely continuing with conservative, orthodox capitalist macro-economic policies which are totally at odds with the radical strategies adopted by their own party and government.
The governor's excuse is that the economic growth outlook "had deteriorated against the backdrop of protracted strike action in the mining and manufacturing sectors... The economy contracted in the first quarter of 2014 and the growth outlook for the rest of the year remains subdued amid low business confidence".
The economic illiteracy of the bank and its advisors lame is laid bare by this pathetic attempt to blame our slow economic growth on "workers' protracted strikes". "A possible wage-price spiral resulting from recent wage settlements and wage demands, considerably in excess of inflation and productivity growth," she says, "have added to the upside risk of the inflation outlook."
The MPC, says the Governor, is concerned that recent wage settlements in the mining sector and currently now in the metal sector had set a precedent for wage demand continuing.
She is right, and other workers will be justified in making similar demands and will not be blackmailed by threats that these demands will be the reason for the continuing problems of low economic growth.
The reality is that the main reason for the slow growth - now forecast to be 1.7% in 2014, down from 2.8% at the beginning of the year - is not strikes and wage settlements but the conservative monetary policies being pursued by the MPC and their colleagues in the Treasury.
That is the main reason why the implementation of the government's expansionist programmes, like the Industrial Policy Action Plan, the National Infrastructure Plan and the progressive sections of the New Growth Path is constantly held back by excessively cautious policies of the Treasury and Reserve Bank, such as on interest rates.
If we are serious about the 2nd Phase of the Transition and the radical restructuring of our economy, the Treasury must implement policies which will achieve what was promised in the ANC manifesto, and the Reserve Bank must follow suit, cutting, not increasing interest rates, to stimulate economic growth and job creation.
COSATU repeats its call for an overhaul of our macro-economic policy, for the Treasury to be urgently realigned and a new mandate to be given to the Reserve Bank, the National Planning Commission to be given a renewed mandate, to realign the National Development Plan (NDP), in line with the proposed radical economic shift and aspects of the New Growth Path to be realigned in line with the new macro-economic framework.
Statement issued by Patrick Craven, COSATU national spokesperson, July 19 2014
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