Keeping head above water amid more rates pain

It is a testament to the strength of South Africa’s economy that, despite 11 hikes in interest rates since the Covid-19 era, when rates were kept artificially low, it has stayed afloat. Considering the impact of the Russia-Ukraine war on energy prices and the relentless wave of interest rate increases decreed by the US Federal Reserve abroad, plus the near-collapse of Eskom and Transnet at home, South Africa’s economy is holding up remarkably well under the circumstances.

Amid the weakening of state institutions during the state capture era, the South African Reserve Bank has stood out as a beacon of rectitude. In its determination to slay the inflation dragon, as per its mandate, the Bank has hiked rates to a 14-year high, with the repo rate now at 8.25%. For its efforts, it has earned scant praise but much criticism.

Each move upwards has inflicted greater pressure on consumers already reeling under the impact of higher monthly payments for vehicles, properties and credit cards. For businesses, the pain has been as severe, with many closing and laying off staff, putting even more people on the streets.

With elections looming this year, the incumbent party the ANC may be hoping for some reprieve from high rates, which could lift sentiment, especially among middle-class supporters with mortgages to pay and loans to service. At times in the past the ANC has passed resolutions calling for the “nationalisation” of the Reserve Bank, as if its ownership would influence its interest rate decisions.

This week, the Bank kept the repo rate unchanged, as most economists had predicted. Concerns about the value of the rand in a volatile election year were a factor, along with the inflation rate, which Bank governor Lesetja Kganyago believes remains too high for comfort. Predictably, though, others have argued rates should be cut, and soon.

In the long run, let’s hope it becomes clear that the sacrifices we are being asked to make today will not prove to have been in vain.