By Anita Dangazele
- Matthew Parks of Cosatu said hiking rates punishes workers for a war they did not start, with most already borrowing just to buy food and pay for transport.
- The Reserve Bank raised the repo rate to 7% on Thursday, with inflation hitting 4% in April after fuel prices jumped 11.4% in one month.
Cosatu saw it coming. And they fought it.
Before Thursday’s announcement, the labour federation warned the South African Reserve Bank that raising interest rates would be the wrong medicine for the wrong disease. The cause of rising prices, Cosatu said, was a war in the Middle East, not South Africans spending too much. Punishing workers for that made no sense.
“Squeezing already struggling workers and consumers would make as much economic sense as decapitating a patient to resolve a migraine,” said Matthew Parks, Cosatu’s parliamentary coordinator.
The Reserve Bank raised rates anyway.
Governor Lesetja Kganyago announced on Thursday that the Monetary Policy Committee had increased the repo rate by 25 basis points to 7%, effective from 29 May. The prime lending rate, which determines what you pay on your home loan and car finance, rose to 10.50%. Four of the six committee members voted for the increase.
The trigger was fuel. After falling 8.7% in March, fuel prices jumped 11.4% in April, one of the biggest single-month increases on record. That pushed consumer inflation from 3.1% to 4.0% in a single month.
Kganyago warned the situation could get worse. If the Middle East conflict drags on, inflation could hit 5% and rates could rise twice more. Add a severe El Niño drought on top of that, and inflation could peak above 6%, requiring three more hikes.
Parks had said the average employed South African already supports seven relatives, with many spending up to 40% of their wages on transport alone. Most, he said, are borrowing just to buy food and electricity.
The Reserve Bank’s next move depends on oil prices, the weather, and a war South Africa cannot control.
Pictured above: South African Reserve Bank Governor Lesetja Kganyago announcing the rate decision on Thursday.
Image source: SA Reserve Bank
