Economist Roelof Botha says South African mortgage bond holders pay R4,000 per month more than they should for no reason.
On 20 July, The South African Reserve Bank (SARB) paused interest rate hikes, keeping the repo rate at 8.25% and the prime lending rate at 11.75%.
The pause followed ten interest rate increases since November 2021, with the SA Reserve Bank implementing a cumulative 475 basis points of hikes,
SARB governor Lesetja Kganyago remained hawkish and warned that it might not be the end of interest rate hikes.
Botha slated the Reserve Bank’s previous decisions and Kganyago’s latest comments, saying he is disgusted with the central bank.
He said the SARB’s Monetary Policy Committee (MPC) is repeating its mistakes in 2015 when former governor Gill Marcus stepped down.
He said Marcus understood that South Africa’s inflation rate is volatile and could move in and out of the target range.
“It is usually based on exchange rate volatility which is typical of being part of an emerging economy at the whim of international fund managers,” Botha said.
She maintained a real interest rate – the nominal interest rate minus the rate of inflation – of 3% on average.
This helped the South African economy should good economic growth in real terms, which has not happened in recent years.
After Marcus departed, the MPC increased the real interest rate to 6%. It translated into a 100% increase in the cost of capital.
Botha said the SA Reserve Bank is now repeating this behaviour by significantly increasing interest rates without reason over the last eighteen months.
Instead of obsessing about short-term inflation, which was not demand driven in South Africa, the SARB had other options.
When the SA Reserve Bank implemented interest rate targeting in 2000, former governor Chris Stals said the target range could be adjusted temporarily.
“All the SARB needed to do was to raise the inflation target range from 3% to 6%, to 4% to 7% or 5% to 8%,” Botha said. “If that was done, it would not have been necessary to raise interest rates at all.”
He gave a real-world example of the impact of higher interest rates on South Africans who are paying off loans.
“Your average mortgage bond holder in South Africa is paying, on average, R4,000 per month more since the SARB started raising interest rates for no reason,” he said.
The higher interest rates are, therefore, hurting economic growth, which in turn leads to higher unemployment.
“Economic growth and employment creation should be the focus of all policymakers in South Africa,” he said.