Labour unions slam possible interest rate hike

SA's labour unions have raised concerns following predictions that the Reserve Bank will raise interest rates on Thursday by between 50 and 75 basis points.

Raising interest rates results in the cost of credit rising and households and businesses having less disposable income as they have to use their money to service debt.

The Reserve Bank is currently in an interest rates raising cycle and between November 2021 and July 2022 has already increased the repo rate – the rate the Reserve Bank uses to lend to commercial banks – five times from 3.75% to 5.50% in a bid to curb the runaway inflation, which for August shot up to 7.6%.

However, labour unions were not pleased by the imminent rate hikes.

"It is very disappointing that the Reserve Bank is suffocating the economy and consumers by raising interest rates and this will worsen the already bad economic situation," said Cosatu spokesperson Sizwe Pamla.

"When you continue to hike rates, nothing will be left to be spent on the economy and more businesses will struggle to survive as the buying power that is supposed to keep them afloat will go towards servicing debt."

Pamla accused the Reserve Bank of overplaying its hand by raising the rates, arguing that inflation was due to factors beyond SA's control.

"The Reserve Bank can't address the imported cost of fuel by raising interest rates. The inflation we have is imported, the basic necessities like wheat is imported from Ukraine and Russia, and due to war the product is scarce in the market. Those are problems that the Reserve Bank can't solve.

"This also applies to Eskom, the Reserve Bank can't stop load-shedding. For the Reserve Bank to pretend to be addressing these issues by increasing the cost of borrowing is a reckless mismanagement of the economy," he said.

Pamla warned that raising rates could result in some businesses failing to expand their operations while others would fold and retrench workers due to diminishing consumer demand.

Trade union Solidarity said the Reserve Bank needed to act sensibly when announcing its interest rate decision.

"Solidarity contends that although the inflation rate of 7.6% falls outside the Reserve Bank’s target ranges of between 3% and 6%, it is no reason for sharp interest rate increases," said Theuns du Buisson, economics researcher at the Solidarity Research Institute (SRI).

“A higher interest rate will put the consumer under even greater pressure and will hamper any opportunity for economic growth in South Africa. As it is, the economy shrank in the previous quarter and with ongoing load-shedding it is almost a given that economic growth will be unlikely in this quarter too. The SARB cannot afford to withdraw more capital from an already ailing market.

“We understand there must be protection against further inflation and weakening of the rand, but at what cost? The South African consumer is already weighed down by debt in addition to sky-high inflation. A drastic interest rate increase will make it all worse,” said Du Buisson.