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DA: Statement by Dion George, Democratic Alliance Shadow Minister of Finance, welcoming the interest rate decision (26/01/2010)

26th January 2010

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The decision to keep the interest rate unchanged is made with the aim to maintain financial stability, which is crucial to ensure economic growth and ultimately job creation. Radical calls from the likes of Cosatu who would want it dropped to 5%, which would almost certainly trigger spiralling rates of inflation, which would reduce economic activity and cut back on job creation.

And that last point is key. Because job creation is precisely what Cosatu claim will be precipitated by a much lower interest rate, and that is a belief that is grounded in ideology and not empirical research. Inflation hurts the economy, and it hurts the poor the most, and claims to the contrary are simply misguided.

Inflationary pressures such as higher wages, the possible Eskom tariff hike and base effects from oil price increases require a tough stance to ensure price stability. But the general trend is definitely towards maintaining the inflation target; erratic populism will only frustrate the broader goals of the Reserve Bank.

Although the decision might understandably come as difficult news to many mortgage holders, and indeed borrowers across the economic spectrum, we must face up to the fact that the recession has placed strain on South Africa's economy, and that maintaining a solid currency, and keeping inflation in check, are crucial for reestablishing our economy's health and viability as a destination for foreign direct investment.

Calls for the "nationalisation" of the South African Reserve Bank (SARB) indicate an inability to understand even basic economic principles and how they apply to the real world. You cannot nationalise a government institution. Behind this call there is a very real threat - the ANC wants to do away with checks and balances on government power. Saying the Bank needs to be "nationalised" is like saying the judiciary should be nationalised - that is not democracy and stands in direct opposition to the Constitution, and principle of accountability.

If the ANC had a look at the management structure and mandate of the Bank this would have been crystal clear: the fact that the Bank has private shareholders is of nominal value to its actual operation. These so-called "shareholders" at the SARB serve as council, have limited say and they can be outvoted by government. Furthermore, in order to "nationalise" the SARB, the existing "shareholders" would still have to be compensated - an expense that will have very little effect and be as wasteful as Blade Nzimande's new BMW.

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