The Congress of South African Trade Unions has noted the decision by the South African Reserve Bank`s Monetary Policy Committee (MPC) to cut the repo rate by 25 basis point to 6,25% per annum. We welcome the long-overdue reduction of the interest rates by the Reserve Bank and we urge the Reserve Bank to further ease interest rates in its next three quarterly meetings

This will provide some relief to consumers who are struggling with the cost of living. Hopefully, this will also make it easier for small businesses to expand and with any luck spur economic growth.  The ongoing retrenchments are a reminder that our economy is paying a huge price for the Reserve Bank’s stringent inflation targeting policy.

The current approach to inflation targeting has undermined many of our macroeconomic policy objectives such as sustainable economic growth and job creation. The suggestion that this current policy will have positive spill-over economic benefits is a hoax because high-interest rates dampen the investment capacity of the private sector.

High interest rates frustrate government's attempts of reducing unemployment because employers do not invest, since most of the investment is funded through borrowing.

COSATU favours an approach that incorporates both the developmental imperatives and also protects the currency. These are mutually reinforcing rather than contradictory. We need a central bank that will pursue an inclusive monetary policy and that will regulate the finance sector with a view to ensuring that there is a redistribution of income and wealth to all South Africans as mandated by the Freedom Charter.

The Monetary policy has a profound impact on the South African economic environment and the ability of the country to meet its development goals. The interest rates impact on core areas of economic activity -aggregate demand, investment, inflation, and the sustainability of the public sector. Determination of monetary policy is therefore not a purely technical question but has profound implications for all aspects of economic life. The failure to act by the government and the reserve bank will mean that the country’s economy will never fulfill its full potential.

 

Issued by COSATU