2% rate hike could ruin many

Wed, 11 Jun 2008

The Inkatha Freedom Party on Tuesday urged SA Reserve Bank governor Tito Mboweni not to hike the interest rate by two percent at the monetary policy committee meeting on Thursday.

The central bank has, since June 2006, raised the repo rate on nine occasions – by 50 basis points each time – to 11.5 percent.

"The IFP strongly believes that many South Africans are already on the brink of financial ruin and that another massive interest rate hike will only make matters worse," IFP spokesperson Hennie Bekker said.

"We would like to urge Governor Tito Mboweni not to hike the interest rate by a massive margin when the Monetary Policy Committee meets on 12 June," he said.

Due to trying economic conditions, cash-strapped South Africans were already struggling to cope with higher petrol, food and electricity prices and another increase would cause further undue hardship in the lower and middle income groups.

Mboweni should take into consideration that inflation, as currently experienced, was largely due to pressures from high global oil and food prices, factors totally outside the control of the SARB.

"While the IFP believes in inflation targeting, the current three to six percent band is not appropriate if the current unstable economic environment is taken into consideration.

"We believe that it might be time for government to review the three to six percent inflation band and adjust it upward.

"When our economic situation stabilises we can always revisit the band and adjust it downward if needed."

This might be a far better approach than simply raising the interest rates again and thus further punishing struggling South Africans, Bekker said.