The ripple effect of the Ukraine invasion has now reached a new dimension in South Africa. While South African motorists were starting to feel the pain of their European counterparts as the fuel price moved towards R 25 / litre, other industries were starting to cringe in agony as the transport costs – an intricate costing element of almost every product – sky-rocketed and is still driving consumer prices up. The result in form of an increasing inflation rate was foreseeable and as such already taken into account by the Reserve Bank during recent Monetary Policy Committee (“MPC”) meetings through all recent rate hikes.
But this fact seems to have fallen victim to the MPC’s latest Alzheimer episode when they were confronted with a new inflation rate of 7.4% and – like toddlers in a fit – threw their toys out of the SARB Cot by increasing the repo rate by 0.75% to 5.5%, the biggest single hike in a decade, bringing the prime lending rate to 9.0%, the highest level in 13 years.
With this step the “Fiscal Guardians” have overlooked about every aspect of the current situation and completely failed the South African people:
- South African households are already suffering severely from higher food, transport and utility costs while still battling the fiscal aftermaths of the ill-advised corona lockdowns in South Africa.
- Small and Medium Enterprises, the backbone of the economy and most vulnerable employers, are busy getting back on their economic feet. The additional financing cost for stock, improvements, maintenance and expansion on top of the losses suffered due to loadshedding will come out of the staff budgets and will prevent necessary hiring and further employment.
- The current inflation is not the result of private or public overspending locally. It is not homemade at all but imported. Any measure designed to reduce investment and spending locally – such as hiking interest rates – is an epic fail that only hurts individual fiscal positions but will contribute “zero” to lowering the imported inflation.
- A significant hike like this one will strengthen the Rand, which is in light of a recovering tourism sector an effect that actually works to the detriment of the attraction of South Africa as an affordable tourist destination.
- The Construction Sector – firmly linked to the property developments in this country – will feel the aftershocks of the interest hike as it will slow down and stop property developments.
So, let me recap:
The South African people and the South African Businesses are fighting 24/7 for survival while being punished with high fuel prices, loadshedding and insane unemployment. The government and the SARB do nothing about the reasons behind those detrimental circumstances, instead, they allow a bunch of overpaid MPC members to compensate for their mental inabilities and challenges through operative activism without any effect on the true reasons for the current situation. If rates rise as quickly as now, demand will decline, causing businesses to reduce output and cut jobs even further!
I thank you … NOT!