COSATU condemns rise in lending rates 08-06-07

 

COSATU condemns rise in lending rates

The Congress of South African Trade Unions vehemently opposes yesterday's decision of the Monetary Policy Committee of the Reserve Bank to raise base lending rates by yet another 50 basis points.

COSATU believes that the Reserve Bank's policy of raising interest rates, in line with a strategy based on inflation targeting - and its obsession with treating inflation and credit expansion as our key economic challenges - is seriously out of step with the needs of a developing economy like South Africa, which has massive problems of high unemployment, widespread poverty and huge inequality.

Everyone except the Reserve Bank and some sections of finance capital see job creation and poverty alleviation as by far the biggest challenges facing South Africa, against which all economic policies ought therefore to be judged. Raising interest rates leads us in the diametrically opposite direction.

It makes it more difficult for businesses to raise the capital to get started and create new jobs. It causes others to collapse, which leads to more retrenchments and throws even more workers into poverty.

It raises the cost of living for homeowners with bonds and for consumers with credit accounts, throwing even more of them into poverty and indebtedness, and it makes housing inaccessible to many ordinary workers.

It also strengthens the rand, at a time when it had fallen to a more acceptable level. This could lead to a new flood of cheap imports and more job losses in manufacturing industry.

This latest increase also powerfully reinforces the public service workers' argument for a 12% pay increase. It will mean that most of them now face further increases in their already rocketing cost of living.

There have positive shifts in some government policies recently, with modest increases in spending on social security and infrastructure, as part of the strategy to stimulate economic growth, reduce poverty and create jobs.

But these are being cancelled out by interest rates hikes which drive down the rate of economic growth, especially in manufacturing industry, increase unemployment and worsen poverty. It is a policy which will wreck prospects of meeting the government's target of halving unemployment and poverty by 2014.

COSATU demands the reversal of yesterday's increase and a lowering of lending rates so that the country's monetary policies can be brought into line with the national developmental priorities.

Patrick Craven (National Spokesperson)