Another Reserve Bank interest rate hike not the solution – Wits professor

Lesetja Kganyago

Further South African Reserve Bank (SARB) interest rate hikes will not solve the country’s problems but will rather negatively impact both the working and middle classes.

This is according to Associate Professor of Economics at the University of Witwatersrand, Professor Chris Malikane, who shared his views in a recent SABC interview.

Malikane said South Africa’s middle class is the “spearhead of the economy”. “It’s a tiny group, but, at the same time, this engine keeps the economy going.”

The middle class is a source of employment for a large section of South Africa’s working class and drives innovation in the country.

However, this group is the most likely to be directly affected by interest rate hikes as they are more exposed to credit.

This also indirectly affects the working class, as middle-class demand generates employment for this group, and the hikes subdue this demand.

The SARB has been in a hiking cycle since November 2021 and has implemented a cumulative 475 basis points of hikes.

This has raised the country’s repo rate to 8.25% and the prime lending rate to 1.75%, the highest since 2009.

“What the Reserve Bank has been doing is not going to solve the problem. It’s going to create more wars, more difficulties and more stress,” he said.

However, the solution to this problem should not necessarily come from the Reserve Bank. Malikane said the National Treasury should develop innovative ways to cushion the middle class, particularly regarding essential items such as housing or mortgage payments.

“I think that interest rates are a blunt instrument, and there needs to be policy measures that are implemented to come up with differential interest rates for essential items such as housing and certain industries,” he said.

Middle class under pressure

The latest Credit Stress Report by consumer analytics and research company Eighty20 for the first quarter of 2023 showed that middle-class South Africans are under immense stress. 

It said this group is struggling to repay vehicles and home loans while relying on credit cards to make it through the month.

According to the report, this segment now spends 70% of its monthly income to cover debt instalments.

This has led to an increase in overall defaults among middle-class households, with an increase of 21% in debt going newly into default – to a rate of 3.4% of the total.


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