Kganyago’s “fight against inflation” increases unemployment and economic stagnation. It is time for Governor Kganyago to resign.
Currency markets are unpredictable, but it is obvious that the SARB Governor Lesetja Kganyago and his Monetary Policy Committee (which unanimously approved the hike) were trying to increase the value of the Rand in the belief it would curb the pressure from rising costs for imports and protect the currency reserve. At any rate, their decision brought the opposite of what they were trying to achieve.
In an ironic and unintended ‘market response’ to yet another half-a percent interest rate hike by the Reserve Bank (to a repo rate of 8.25%), the Rand lost another 30 cents in value against the US Dollar. This unexpected reaction might be the result of foreign pension funds with a long-term view and investors in SA companies who understand that the South African Reserve Bank is sending our economy into darkness.
If ordinary people are to be protected against rapidly rising prices – there is a need for price controls against sudden currency outflows, capital controls are the only method, which policy the SARB abhors.
The prime lending rate – the best rate most people can get on a bond when they buy a house or a car – increased to 11.75%. South Africans are squeezed from all sides, heavily indebted, with a dark winter of Stage 8 load shedding looming. Of the almost 20 million people with credit cards, shopping cards and other types of credit, even more, will default on their debts. Heavily indebted firms will enact further layoffs, or fail to invest as loans become more expensive.
The idea that these hikes are a ‘necessary evil’ to keep inflation down is completely meaningless when considering that the monetary policy is anchoring the economy in recession. Governor Kganyago’s argument at the press conference that “failure to act against inflation would mean that we are short-changing the poor” is blatant nonsense and false.
Just as with pensions, child care grants or the R350 Special Relief Grant, incomes from work in households, families and extended families are shared. When the SARB stamps down the economy like this, they leave the majority of South Africans more vulnerable to price increases (inflation).
In other words: At any given inflation rate, the most important factor for a working-class family is how many relatives and family members are earning an income. It is simply more important to the working class if breadwinners lose their jobs than if the inflation rate is 6, 7 or 8 percent per year.
The truth is that the Reserve Bank is inflicting extreme pain on the poor to protect the financiers’ investments in the speculative financial sectors and to protect the interests of large creditors. It is no coincidence that the Chief Economist of Investec even recommended a 0.75 basis point hike before the MPC announcement. Fractions of percentage points in interest rates or inflation mean billions in difference to the “financial class” and the bankers.
Perhaps the reaction of the markets shows that even short-term investors can see that South Africa is being led into darkness by the SARB, hand in hand with Eskom and the National Treasury. Or they realised that long-term investors would start to sell off financial assets. They then had to follow suit.
Kganyago’s “fight against inflation” simply increases unemployment and economic stagnation. It is time for Governor Kganyago to resign.
Read more in the AIDC’s March 2023 statement on the interest rate hikes.
For more information contact:
Dick Forslund: 082 895 7947 / dick@aidc.org.za
Dominic Brown: 081 309 4973 / dominic@aidc.org.za
Jaco Oelofsen: 084 376 9019 / jaco@aidc.org.za
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