SACP Denounces the Highest Interest Rate Hike in Two Decades

22 July 2022

The South African Communist Party (SACP) denounces the decision by the South African Reserve Bank’s five-member Monetary Policy Committee to increase the country’s already high interest rate compared to many countries. On Thursday, 21 July 2022 the Reserve Bank increased the repurchase rate by 75 basis points. This raised the repurchase rate from 4,75 per cent to 5,5 per cent, compared to Australia (1,35 per cent), Britain (1,25 per cent), Denmark (–0,45), Japan (–0,1 per cent), the United States (1,75 per cent), Norway (1,25 per cent) and many other countries. The highest repurchase rate hike by the Reserve Bank in 20 years, since 2002 when the repo rate was hiked by 100 basis points, brings the prime rate to 9 per cent.

It is said the sky-rocketing interest rate hike in 20 years underlines the Reserve Bank’s determination “to tame rampant inflation and also signalling an acceleration in the pace of interest rate hikes” (Business Day, 21 July 2022: “Reserve Bank signals sharper rate hikes ahead as it confronts inflation”). This anti-people conservative monetary policy direction will negatively affect the national imperative to achieve inclusive economic growth by raising the cost of borrowing and capital.

With COVID-19 restrictions relaxed across the world, some social protection programmes that were adopted at the height of the pandemic have been withdrawn in many situations across the world. In our country, those affected include the millions who the South African Social Security Agency did not pay the Social Relief of Distress Grant after April 2022 following changes to the eligibility regulations for the grant or as a result of a failure to pay the grant. This negatively impacts local demand. At this moment, South Africa should move decisively towards a comprehensive social security, including a universal basic income grant.

Interest rate hikes that further suppress local demand as if it had not been affected already by a wide range of factors like the aftermath of the COVID-19 pandemic in the current reality amount to firing blanks at inflation.

For South Africa to build national production, we need an accommodative interest rate policy that supports the productive sector.

Besides, the major underpinnings of the unfolding global cost of living crisis that mostly affects the workers and poor, with those deprived of access to the grant a typical example, is largely driven by exogenous factors—i.e., factors with an external origin and drivers.

For instances, the NATO-provoked war in Ukraine and NATO’s extraterritorial sanctions not only against Russia but also against Venezuela and other countries are in no small measure contributors to the global cost of living crisis. The crisis is also hitting imperialist countries like Britain (Lancet, www.thelancet.com/public-health Vol. 7 June 2022: “The cost of living: an avoidable public health crisis”).

In the energy sector, Russia is the world’s major gas and third oil producer, while Venezuela has the world’s largest proven oil reserves and is an oil producer of note. The extraterritorial sanctions by the United States-dominated NATO are a key driver of high oil prices and increases. The increases in oil and related fuel prices culminate in increased production and transport costs, which culminate, through the pricing mechanism, in increases in the prices of consumer goods and services.

Another major contributor to the global cost of living crisis is the breakdown of global production networks and supply chains by the NATO-provoked war in Ukraine and by NATO’s extraterritorial sanctions.

The global cost of living crisis is also driven by the capitalist system through its profits before people and profits before the environment accumulation regime. It is this that underpins the problem of climate change, which negatively impacts food production and contributes to rising food prices.

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