As I am watching from my inherent bird’s-eye-perspective I can tell you that the 18th November 2021 will go down in history as yet another witness for the reckless financial mismanagement of your country. The Monetary Policy Committee (“MPC”) of the South African Reserve Bank (“SARB”) under its formerly hopeful but now rather toothless and blind Governor Lesetja Kganyago has single-handedly dealt another devastating blow to the fiscal well-being of all private households, which had so far no chance to recover from the COVID Lockdown Disaster created by a well-known bunch of greedy sell-by-date ministers.
The hike might not be big with 25 basis points being added to the current repo rate of 3.5%, bringing it to 3.75% and the prime lending rate of the country from 7.5% to 7.75%. But even in this dimension, the hike is not justified by any rational reason or factor, be it locally or from abroad. On the contrary, now – in the eve of this as financially challenging as catastrophic year – there was the golden opportunity to make up for lost ground on the battlefields of COVID and to put a fat turkey on everybody’s table. This opportunity was deliberately missed, either as a “thank you” for not voting the failed and ailing ANC into municipal power or simply because the last sense of reality and compassion for the (wo)man on the street has left the SARB ivory tower.
Kganyago justified the rate-hike decision not by presenting facts, but only – and truly only without any exception – based on his personal fears and ill-founded assumptions as to the economic and fiscal future of South Africa:
The long-term effects of load shedding were quoted by him as one of the reasons. But as the main effect of load-shedding is a drop in the economy’s productivity and therefore hindering or slowing economic growth, the way to counter the long-term effects would be to compensate and to encourage investments stimulating growth by lowering interest rates.
Economic Growth Projections
Talking about economic growth, the July unrest, load shedding and lockdown restrictions weigh heavily on the economic recovery and have led to a correction of the growth projections for 2021 from 5.3% down to 5.2% and for the third quarter of 2021 have been revised to -2.5% from -1.2% before. The logical consequence would be – again – to stimulate investment and growth by lowering interest rates. On a side note and to show the extent of the incoherent thinking of the Governor I need to quote from his address:
“Despite these quarterly revisions, the annual growth rate in GDP for 2021 reflects a healthy bounceback from the economic effects of the pandemic. In the next two years, economic growth is expected to align with a low rate of potential growth”
Now, where is any bounceback “healthy” if over the next TWO (sic!) years growth is expected at a low rate of … NOT definite, NOT expected, BUT only POTENTIAL growth. And if the outlook is that dismal and discouraging, wouldn’t the announcement of a whole bunch of stimulus packages be expected, besides the lowering of interest rates?
Globally rising commodity prices, led by the oil price which rose by 68% over the last six months, were quoted by Kganyago as another reason for hiking interest rates as the threat of imported inflation looms. I am sorry, but this is for more than one reason “bird poop”! Firstly, the commodity prices were rising over months during which a minimum of three sessions of the MPC took place and over which a variety of price adjustments took place, but left the inflation rate still untouched in its lowest level for years. Any such prognosis of imported inflation pushing the local inflation rate towards the ceiling of the South African 3%-6% corridor would have been met with immediate interest rate hikes, but neither did the inflation spin out of control, nor was there any need for rate hikes. Secondly, already the days BEFORE the meeting of the MPC, in the US prices fell sharply after oil inventories at a key hub in Cushing, Oklahoma rose for the first time in weeks and on signals that supply constraints began to ease West Texas Intermediate futures, the US benchmark for oil prices, and Brent futures, the global benchmark, were falling and are now trading at their lowest levels in six weeks. But why read the news when the opportunity to screw a whole nation is at hand … right, Mr Kganyago?
Perhaps, Maybe and Uncertainty
Another three factors that are supposed to support his decision were – and I quote here – the current high export prices that perhaps begin to fade, the uncertainty of moderated household consumption based on weak job creation and – the best for last – some upside risk to the growth outlook through a faster vaccine rollout. Yes, Governor, THAT is what you said, word by word and it only proves that you have absolutely no base for your assumptions and even less support for your ill-timed decision to hike interest rates. You further said – and I quote again – “that while the environment remains uncertain, policy decisions by the Reserve Bank will continue to be data-dependent.”. What data? Which lunatic prepares the figures that seem to form the basis for your decision?
I am not surprised that the vote was only three vs two in the MPC to push for the interest rate hike, but those three have now increased the fiscal burden of a whole nation and it is a pity that they cannot be held accountable for their irrational and short-sighted vote. And shame on you, Governor, for trying to sell your fairytales to the unsuspecting public!