Solidarity cautions the SARB to be sensible about interest rate increases

21 September 2022

Solidarity today appealed to the South African Reserve Bank (SARB) to act sensibly when it comes to announcing its latest interest rate determination on Thursday 22 September.

Solidarity contends that although the inflation rate of 7,6% falls outside the Reserve Bank’s target ranges of between 3% and 6%, it is no reason for sharp interest rate increases.

“A higher interest rate will put the consumer under even greater pressure and will hamper any opportunity for economic growth in South Africa. As it is, the economy shrank in the previous quarter and with ongoing loadshedding it is almost a given that economic growth will be unlikely in this quarter too. The SARB cannot afford to withdraw more capital from an already ailing market,” Theuns du Buisson, economics researcher at the Solidarity Research Institute (SRI) said.

According to Solidarity, the SARB should give serious consideration to the consequences of higher interest rates for the already beleaguered South African consumers.

“We understand there must be protection against further inflation and weakening of the rand, but at what cost? The South African consumer is already weighed down by debt in addition to sky-high inflation. A drastic interest rate increase will make it all worse,” explained Du Buisson.

Solidarity further argues that the current inflation can mainly be attributed to supply factors and that increased interest rates will simply impoverish South Africans without having a significant influence on the consumer price index (CPI).

"One simply cannot magically resolve a shortage of goods such as oil and grain by bringing about a shortage of money by means of interest rates. The biggest factor in the current inflation cycle is international trends such as the price of oil which, for example, has resulted in the current fuel price inflation rate of 43,2%. An exaggerated urge for interest rate increases will do little to alleviate this,” Du Buisson concluded.

Issued by Theuns du Buisson, Solidarity Research Institute: Economics Researcher, 21 September 2022