COSATU statement on the SARB’s decisions to increase interest rates
27 January 2022
The Congress of South African Trade Unions (COSATU) has noted the South African Reserve Bank’s decision to increase the repo rate by 25 basis points to 4% in response to a rising inflation. Unfortunately, in the current reality where 25 million people are on welfare and workers’ wages remain stagnant, a runaway inflation cannot be allowed to repeal their little stipends.
The Federation does acknowledge that price stability is important even from a point of view of radical socio-economic transformation since we currently depend on capitalists for job-creation and growth.
But we still denounce the Reserve Bank’s conservative, one-dimensional and narrow pursuit of the protection of the value of the currency. We still insist that the Reserve Bank’s mandate cannot just be limited, only to keeping inflation under control, but it also needs to focus on supporting economic growth and job creation too.
Narrowly focusing on inflation is wrong when a large part of the cause of inflation is imported in the form oil prices and food prices. The big challenge for government is to find a solution to the forever rising price of such critical supplies as fuel and electricity.
The NGP is clear in its proposal of a “looser monetary policy”, and this is in line with the 2019 ANC manifesto commitment calling for “a flexible monetary policy regime”, and that “the monetary policy must consider other objectives such as employment creation and economic growth.
Monetary policy, the domain of the Reserve Bank, has a profound impact on the South African economic environment and the ability of the country to meet its development goals.
It influences the conditions under which the private financial sector can create credit, it determines the growth rate of the money supply and the level of interest rate.
The interest rate, perhaps the most influential price in the entire economy, then impacts on core areas of economic activity-aggregate demand, investment, inflation, and the sustainability of the public sector. Determination of monetary policy is therefore not a purely technical question but has profound implications for all aspects of economic life.
The Constitution’s clear injunction that the protection of the value of the currency must not be at the expense but “in the interest of balanced and sustainable growth” is being ignored by the Reserve Bank.
Constitutionally, the SARB is expected and required to deal with the value of the currency in the manner that would ensure a balanced and sustainable growth, and this naturally requires contributions from many other parts of government and society.
The Bank does tend to exaggerate the capacity of the SARB to deliver low and stable inflation, as if the protection of the value of the currency also does not require the contributions from many other parts of government and society.
In an economy such as ours characterised by high concentration of monopoly power, high administered prices and infrastructural bottlenecks, the level of inflation cannot merely be the function of the blunt instrument that is the repurchasing rate.
The reality is that it’s a myth that there could be no balanced and sustainable growth if there is price volatility or inflation is outside the band.
South Africa’s best chance is to remove the arch- neoliberal government appointed directors in the board of the SARB, and remove the executive directors, too. The country needs people who can maintain inflation-targeting, protecting the value of the rand, living standards and the value of investment capitals, whilst still being able to prioritize employment. We need imaginative personnel with capacity and credibility.
Issued b Sizwe Pamla, National Spokesperson, COSATU, 27 January 2022
