As widely expected, the South African Reserve Bank’s Monetary Policy Committee (MPC) announced this afternoon that the repo rate will be left unchanged at 6.75%.
This is welcome news for workers, as consumers under financial pressure lose their buying power, resulting in a struggling, low-growth economy and minimal job creation. Right now, South Africa needs the opposite.
While we are pleased with the unchanged repo rate, South Africa actually needs lower interest rates to make investment projects profitable and create jobs – and increase the country’s tax income which will reduce the fiscal deficit and the country's vulnerability to external shocks.
With the decrease in the inflation rate announced this week, we believe the Reserve Bank missed an opportunity to reduce the repo rate, help boost the economy and make South Africa an attractive investment zoneagain.
The MPC’s aim to keep inflation at 4,5% - opposed to a rate moving between 3% and 6% - is of little use to the 38% of the unemployed and the 50% of the population between 15 and 64 who have no income.
Currently, inflation is low due to low consumer demand as consumers can't afford higher prices due to higher income taxes, higher interest rates and higher inflation, which collectively contributed to lower purchasing power.
The lacklustre performance of retail sales is testimony of the weak demand. In addition, the highest ever expanded unemployment rate also contributed to the weak demand.
So, inflation is presently low as companies are absorbing a bigger portion of the cost pressures, often at the expense of jobs.
For now, UASA is pleased with the outcome of today’s MPC meeting as it means no extra burden on consumers.
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