The Congress of SA Trade Unions (Cosatu) said on Friday that it is shocked by and totally condemns the decision by the SA Reserve Bank’s (Sarb’s) Monetary Policy Committee (MPC) to increase the repo rate by 25 basis points (bps). By Carin Smith
Cosatu regards the latest rate hike as a reckless decision that will cause “untold harm to the beleaguered workers and the poor majority”. In the federation’s opinion this move will further slow economic growth and stifle any chances of employment creation.
“Workers are battling to make ends meet and provide for their families and the economy is shedding thousands of jobs in all sectors. Their measly wages are not keeping up with escalating prices of basic necessities,” Cosatu said in a statement.
“Food, water, fuel and electricity prices are repealing the wages of the working poor.”
Cosatu emphasised that SA needs economic growth to help address unemployment, deepening poverty levels and growing inequality. It said it does not understand how making the cost of borrowing money and ultimately of doing business more expensive will help to stimulate the economy.
Cosatu said it wants to see Sarb “nationalised”.
The Economic Freedom Fighters (EFF) also wants Sarb to be “nationalised, given its strategic role in the economy. The party also wants “inflation targeting to be abandoned in favour of incentivisation of the increased money supply into productive and manufacturing sectors of the economy that should create jobs and grow the economy without exploitative profiteering”.
The EFF said on Friday it is very disappointed by the decision of the MPC to increase the repo rate by 0.25%. The party is concerned by rising food price inflation that it said largely affects the poor majority, most of whom only survive on social grants.
In the EFF’s view there is no reasonable justification for what it claims to be an excessive rise in food prices. It accuses large supermarket chains and food producers of greed and profiteering motives “without any social consideration to the large majority who live in poverty and struggle to afford food”.In the view of the EFF, the SA economy is not growing primarily because of “the indecisiveness and incompetence of the ANC government to pursue radical economic transformation measures”.
The party regards key among these to be the nationalisation of strategic sectors and land expropriation without compensation.Further immediate economic policy intervention needed in the EFF’s view, would be to ensure that JSE-companies “hoarding billions of cash” reinvest this in the economy.”
The obsession with foreign direct investment is misplaced as there exists a domestic investment capacity. That money sitting idling bank accounts of listed companies must be reinvested in the economy,” the EFF said.”
The EFF offers the Sarb free monetary policy advice: that interest rates must be left unchanged going forward in order to spur growth and for Minister of Finance Pravin Gordhan, to immediately formulate measures to arrest corporate greed and exploitative profiteering that is causing unwarranted food price inflation.”
The National Union of Metalworkers of South Africa (Numsa) also strongly condemned the decision of the MPC to hike the repo rate. In the union’s view the decision was in the interests of “white monopoly capital, particularly the banks, with no regard to its inevitable negative impact on workers and the poor and the worsening of an already serious economic slowdown”.”
Workers who are struggling to pay increases in food prices, electricity tariffs and school fees now face having to find more money to pay off bonds, car repayments and interest on loans, which so many are being forced to take out just to survive,” said Numsa.
Even more worrying to the union is what it regards as the danger of even more jobs being lost, as firms already struggling to remain solvent could decide that the additional cost of paying higher interest will force them into bankruptcy or retrenching staff.
Numsa said it recognises the symptoms of a broader socio-economic crisis.
“The repo rate increase is yet another example of the government, and its agencies like Sarb, slavishly following the capitalist agenda dictated by ratings agencies,” said Numsa.
“This attack on workers’ living standards and jobs makes Numsa and the working class as a whole more determined than ever to build a new militant, independent and democratic union federation and a revolutionary workers’ party to challenge the dictatorship of white monopoly capitalism and fight for the socialist alternative.”
According to Ian Wason, CEO of DebtBusters, Sarb’s latest hike in the repo rate will blow everyone’s budgets.
“South Africans cannot absorb any more increases in their debt repayments. This announcement does not bode well for SA consumers, as the Sarb’s decision to increase interest rates means that they will be paying even more toward their debt,” he explained.
In his view, the timing of this rate hike is extremely bad for most South Africans for a number of reasons. These include the debt to income ratio among South Africans which is already too high, leaving little or no money for living expenses.
Investment economist Arthur Kamp of Sanlam Investments said on Friday it is important that Sarb highlighted a focus on maintaining a prudent, sustainable fiscal policy to assist in containing inflation.
While Budget 2016 shows the desired intent to stabilise and eventually lower government’s debt ratio, food price inflation and the rand exchange rate remain key risks, Kamp pointed out. In his view there is significant uncertainty around the future direction of the rand and the likely pass-through impact of currency weakness on headline inflation. “So far, as the Sarb notes, the pass-through impact has been relatively low. Still, the MPC also warns there are signals that this may be changing,” said Kamp.
In addition, Kamp observes some “worrying jumps” in producer prices. For example, food prices at agriculture level spiked 25.9% in the year to January 2016, while, among manufactured goods, PPI vehicle prices increased 16.5% year-on-year in the same month.”
Our base case inflation profile for the next two years is similar to the Sarb, but we are also wary of potential upside risk. In addition to volatility in the currency and oil prices, uncertainty around the likely pass-through effects from rand weakness to consumer price inflation could prompt significant, frequent changes to inflation forecasts as new information becomes available,” said Kamp. – Fin24