OPINION| Technically, pushing up the interest rate is meant to induce savings and reduce spending. In the South African context, though, most consumers are indebted and higher interest rates simply mean more money spent on servicing that debt.
The Reserve Bank has a blunt instrument with which it is trying to put out fires that it didn’t start and are sustained by villains elsewherepare a thought for the monetary policy committee members who manage monetary policy for South Africa.
There is also a global reality. South Africa is a tiny economy, highly dependent on imports. Imported goods, such as refined fuel, are largely priced in US dollars. So, the Reserve Bank must consider not only the volume of money in circulation locally to tame inflation but what interest rate movements might do to the value of the rand.
The MPC, in a highly considered statement on 25 May, decided to increase the repo rate by 50 basis points to 8.25% a year — commercial banks operate at 400 basis points higher than the Reserve Bank, so they’re retailing interest at 10.25%. It’s not just that the ruling party seems to be putting its own interests ahead of those of the country, it’s that South Africa has appeared to be actively aligned to the Russian Federation until now. Nonetheless, President Cyril Ramaphosa’s 10-point plan to stem the conflict can be criticised for many things but partial to Russia it wasn’t.
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