Rate hike a 'cruel blow'

Tue, 17 Jun 2008

The latest hike in the repo rate was a "cruel blow" to South Africans already trying to recover from the previous nine 0.5 percent increases, the Congress of SA Trade Unions (Cosatu) said on Friday.

"Yet again people - who are already battling the effect of runaway increases in the cost of food and fuel, and who face the prospect of a massive rise in electricity tariffs - now have to try to scrape together more scarce rands to pay even more interest on their bonds and loans," Cosatu said in a statement.

"Thousands more homes and cars are going to be repossessed and it will certainly not be only the rich who suffer, as (the Reserve Bank governor) Tito Mboweni cynically suggested recently," said Cosatu spokesperson Patrick Craven.

"Millions of the poor have been forced to borrow money to pay for essential items."

Cosatu said that although the policy was supposed to target the danger of inflation, it was actually making inflation worse for the majority of South Africans.

"It is incredible that the Reserve Bank believes that this policy is helping to reduce inflation, when it is clearly increasing inflation by not only raising the cost of living for anyone who is repaying a loan but indirectly by forcing companies to recover their higher loan repayments from their consumers by raising the price of their goods and services".

No less serious was the impact of the rate increases on economic growth and employment.

"Companies, especially small ones, will face crippling increases in their costs and thousands of jobs could be lost," said Craven.

"Certainly, fewer new jobs will be created, as economic growth - which has already slumped to just 2.1 percent in the first quarter of 2008, from 5.3 percent in the last quarter of 2007 - is now likely to slump even further as a direct result of this increase."

Cosatu said Mboweni had clearly not heeded the call from the May Alliance Summit for a review of his policy of inflation-targeting.

"Once again, Cosatu insists that this policy is totally wrong for a developing country like South Africa with huge problems of unemployment and poverty ... It is a reckless and irresponsible policy that is putting the future of our economy in jeopardy."

Cosatu said it would add the rising interest rates to the issues it would be protesting against in a programme of mass action starting on 2 July and culminating in a national stayaway on 30 July.

Other issues were the rising prices of food, fuel and other essential commodities.