The Congress of South African Trade Unions (Cosatu) has condemned the central bank for the 75 basis points rate hike, calling it unnecessary.
South African Reserve Bank (SARB) governor Lesetja Kganyago says the bank hiked rates amid continued inflationary pressure that is being fuelled by various sources including Russia’s war in Ukraine.
The hike puts the repo rate at 5.5 percent, while the prime rate goes up to 9 percent.
Cosatu’s parliamentary coordinator Matthew Parks, says that the bank should have considered a lower increase.
Parks says, “It’s a huge blow, it means that workers have less money to take care of their families. It means workers’ home loan payments, their credit card, their store payments, whatever debt they might have is now much more expensive…”
“It means less money for workers to buy food for their families. It’s a devastating blow, not just to workers but to the economy. Companies are going to struggle to pay workers salaries, they’re gonna struggle to hire more workers to help reduce unemployment, so really it’s a massive blow,” says Parks.
“We must condemn as Cosatu, in the strongest possible terms the Reserve Bank, this is unnecessary, they could have gone for a much lower rate hike like 25 points,” Parks added.
On Thursday SARB’s Monetary Policy Committee (MPC) increased rates, the highest rate hike in two decades, taking the repurchase rate to 5.5 percent and the banks’ prime lending rate to 9 percent. It is the fifth consecutive repurchase rate hike since November 2021.
Political party reaction to yet another interest rate hike:
SARB Governor Lestja Kganyago says the upside risk to the inflation outlook on the back of rising fuel and food prices is one of the main reasons behind the bank’s latest decision.
The latest interest rate hike by the Reserve bank spells bad news for indebted consumers. This means that a bond of R500 000, over a 20 years repayment period at prime rate, will increase by almost R240.
Alternatively, a bond of R 1 million rand over a 20 year period at prime rate, will see an increase of just over R470 in bond repayments.
Kganyago says economic and financial conditions are expected to remain more volatile in the foreseeable future.
Kganyago says, “The MPC decided to increase the repurchase rate by 75 basis points to 5.50% per year, with effect from the 22nd of July 2022. Three members of the Committee preferred the announced increase. One member preferred a 100 basis points increase. Another member preferred a 50 basis point increase. The revised repurchase rate path remains supportive of credit demand in the near term, while raising rates to levels consistent with the current view of inflation risks.”
The SARB notes that higher food, fuel, and core inflation have resulted in an upward revision of headline inflation this year to 6.5 percent from 5.9 percent.
Core inflation, which excludes food and non-alcoholic beverages, fuel and energy prices, is also forecast higher this year to 4.3 percent.
What interest rate hikes mean to ordinary South Africans:
The government needs to help out South Africans: DA
The Democratic Alliance (DA) says the government needs to help out as South Africans face further economic hardship amid the SARB’s decision to hike rates.
DA’s spokesperson on Finance Dion George says the government needs to do something to help out already stressed consumers.
George says, “It does however mean that there’s significant hardship for South African consumers, and hardworking South African taxpayers, and it would be expected now that government should do something bout VAT, especially if you look at the fiscal space, people are paying more for transportation, they’re paying more for food, it’s becoming very difficult; and what is happening is that people are being taxed into poverty…”
“So, what the government can do right now, it can provide a tax relief that’s required. In the first instance, what it can do is stop borrowing so much money, stop the corruption, stop the stealing, added George.
Interest rate pain for indebted consumers:
