Yesterday, the South African Reserve Bank made the outrageous decision to raise the repo rate by 50 basis points, up to 7.75%, marking the ninth consecutive increase since November 2021. This is a deeply regressive decision. It will further pull down the South African working class that is already struggling to survive, and billions of rand will be lifted out from effective domestic demand and placed in the hands of the bloated finance industry.
The Reserve Bank acts according to its narrow-minded mandate of inflation targeting, but even with interest rates up, prices will still rise faster than wages, as the vast majority of wages are stagnant or declining in real terms. A report by the Labour Research Service found that wages declined by an average of 0.9% in 2022. Public sector workers have been struggling against the state’s policy of wage cuts for the past three years; just one part of the cruel austerity strategy implemented in order to appease international lenders.
In addition, the debt crisis in working-class households will worsen as a result of interest rate hikes. On average, over 60 % of household incomes are already spent on debt, and many of those fortunate enough to have jobs are not able to make it to the next payday without taking on even more loans. According to News24, even “middle-income” workers earning between R15 000 – R42 000 have exhausted 80% of their salary only 5 days after payday. The result is ever-shrinking household incomes, the loss of already-meagre personal wealth, and bitter poverty. A recent study shows that one in 5 South African families is sending a household member out to beg for food. The increase in the repo rate will plunge more South African households further into an inescapable debt trap while resulting in an upward transfer of wealth to the minority of elite lenders, bankers, and profiteering loan sharks.
The SARB acts on autopilot, simply following the lead of the United States in blindly raising interest rates. In theory, this destructive strategy aims to reduce the buying power of households and increase the cost of debt, so that spending and inflation may both slow.
But prices are not rising because South Africans are spending too much! Prices are rising because of external factors, such as the sky-high fuel price and the costs of adapting to load-shedding; and because of the logic of capitalist investment that demands ever-increasing profits which leads to price hikes and price fixing. The Competition Commission has slammed food retailers and producers for unjustifiable price increases over the past few years, suggesting that “shelf price increases may not be justified by costs”.
South Africa’s economy has been dipping in and out of recession for years. Constant interest rate hikes will only further crush this exhausted economy, possibly causing a full-blown depression. Should this happen, then the SARB might actually achieve their goal of slowing inflation – at the cost of the whole economy and the vast majority of our people. This would lock in unemployment by smashing economic growth and chasing investment from the productive to the financial sectors. With unemployment hovering around record highs, the blunt-force approach will only add to the brewing social crisis. We should not be surprised at escalating crime, violence, and the further collapse of the social fabric as South Africans face the three-pronged assault of austerity, privatisation, and regressive monetary policy.
These policies are not benign. They come at the cost of great suffering for the benefit of a narrow elite. Beyond pleasing predatory lenders, the SARB’s monetary policy serves to attract more foreign speculation in our oversized financial economy, dominated by fast capital that will flee the country with a push of a button the moment better returns can be found elsewhere and further destabilising our currency. As South Africa continues to import more, and local capital continues its “investment strike”, the foreign currency becomes more and more necessary. This then encourages the South African Reserve Bank (SARB) to try and further out-compete the United States for the approval of international finance capital flows.
We need a central bank with a mandate in fighting unemployment and inequality rather than protecting the super-elite, a central bank that is accountable to the majority. We call for capital controls to curb the destabilising flows of speculative finance across our borders and to stabilise the rand. If the state is serious about combating inflation, it should impose price controls on staple foods and essential consumer items. Extraordinary taxes on the super profits of our four vertically integrated whole- and retail sale companies would disincentivize them from opportunistic price increases that take advantage of the dire situation.
But we know that the current state is far too embedded in the neoliberal paradigm to take these reasonable measures – there is hardly a line between our political and economic elites. In these conditions, we must look towards building a coalition of poor and other working-class forces to resist these assaults – and build towards an alternative to the nightmare that South Africa is barrelling towards.
For more information contact:
Dick Forslund: 0828957947 / email@example.com
Jaco Oelofsen: 0843769019 / firstname.lastname@example.org
Brian Ashley: 0820857088 / email@example.com