The Reserve Bank is moving from being tolerably assertive to becoming overzealously reckless on interest rates
22 July 2022
The Congress of South African Trade Unions (COSATU) condemns in the strongest possible terms the Reserve Bank’s massive repo rate hike of 75 basis points today. It is a gut-wrenching blow to millions of workers drowning in debt and struggling to take care of their families. This is devastating for an economy that is still in a recession and struggling to emerge from Covid-19, steep fuel price hikes and rampant load shedding.
The Federation appreciates the need to keep inflation in check because its significant rise to 7.4% fuelled by the war in Ukraine and international oil price volatility remains deeply worrying. If inflation gets out of control, it will erode workers’ meagre wages.
However, we feel that for an economy that suffers from large external shocks, depressing demand through exorbitant interest rate hike does not make sense. Using the interest rate when the main driver of inflation is not demand but rather the sky rocketing oil prices, which translate into high food prices, commodity prices and speculative exchange rate fluctuations alone will not help the situation.
What this steep repo rate hike will end up doing is to bleed workers and suffocate the economy further. What will the SARB do next month if things continue as is? The institution that id the Reserve Bank is trapped because of its one-dimensional, and one trick pony response to inflation. We need the bank to be flexible and pragmatic in the face of a fluid satiation economic situation.
COSATU condemns government’s failure to provide leadership at this critical moment and its outsourcing the management of this crisis to the SARB. Government needs to provide leadership in this critical moment. The causes of the inflation spike are imported, they are not domestic. Yet there are key interventions at government’s disposal to help cushion the poor, workers, and the economy now.
Government, as promised by the Ministers for Finance and Mineral Resources and Energy in May and previously in 2018, needs to slash the taxes on fuel. Currently 32% or R9 per litre of the fuel price goes to the state. That can be reduced and provide immediate relief to workers and the economy. The resulting loss in revenue to the state can be made up by allocating additional revenue to SARS. This will enable it to appoint additional staff and invest further in its capacity to tackle the billions lost to tax evasion.
The government must honour it commitment to the Eskom Social Compact, by reducing Eskom’s unsustainable debt burden from R400 billion to R200bn. This will enable it to invest more in maintenance and new generation. This will reduce load shedding and the need for Eskom to impose double digit tariff hikes.
The Department of Transport must ensure all Metrorail and Transnet lines are fully operational and secure. This will help 10 million urban commuters and agricultural products travel by train and thus be shielded from fuel hikes.
The Department of Transport must re-submit RAF and RABS Bills back at Parliament now. These will set the RAF on a sustainable path and lessen the need for fuel levy hikes.
SASSA must fix its administrative chaos and ensure all 10 million eligible persons receive the R350 SRD Grants they are entitled to. These should be increased to the food poverty line. The Presidency must double the Presidential Employment Stimulus to provide work opportunities to 2 million young people.
We are simply running out of time and the nation cannot afford dithering and dilly dallying. The time for decisive leadership is now.
Issued by Size Pamla, National Spokesperson, COSATU, 22 July 2022
