South Africans suffer financially – for no reason

Lesetja Kganyago

Economist Roelof Botha argues that high interest rates are causing unnecessary financial suffering among many South Africans.

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) voted to raise interest rates ten times since late 2021.

The Reserve Bank said the rate hikes were necessary to stem inflation and bring it within the target range of 3% to 6%.

SARB Governor Lesetja Kganyago has often said that they will not hesitate to do what’s needed to preserve price stability.

“There’s not one doubt that we will bring inflation down,” he said in November 2023. “The central bank is determined to protect the income of the poor. When inflation rises, we will tackle it.”

Many economists, including Dawie Roodt and Hugo Pienaar, supported the Reserve Bank’s decision to increase interest rates to the highest in fourteen years.

Pienaar said South Africa suffered a sequence of supply shocks, including pandemic-related issues, energy and food price increases because of the Ukraine war, and rand weakness.

“The sequence of shocks meant the SARB could not, with any degree of certainty, bank on transitory forces on its own doing the work to lower inflation,” Pienaar said.

“There is no way any credible central bank would simply accommodate these pressures and allow expectations of future inflation to run away.”

Botha does not share Kganyago, Roodt, and Pienaar’s view on the need for high interest rates in the current economic environment.

Botha called the SARB’s aggressive interest rate increases ridiculous, arguing that South Africa’s inflation is not demand-driven. “It is purely supply-driven,” he said.

Therefore, the SARB’s interest rate hikes will have little effect on South Africa’s inflation and will likely do more harm than good to the economy.

“This is unbelievable, and it isn’t necessary because it’s not going to make a dent in our inflation,” he said.

Botha added that the aggressive interest rate hikes have caused the cost of capital to increase to inhibitive levels.

Change to the SARB’s Monetary Policy Committee

Economist Roelof Botha

To create a more balanced view on interest rates, Botha called for a more diverse Monetary Policy Committee.

Kganyago recently said a process is underway to appoint a Deputy Governor and up to two more MPC members. However, Botha does not think this is sufficient.

He wants the MPC to consist of ten members. It should include two top economists from trade and industry, one from the National Treasury, and three private sector veterans.

“You will have a much more democratic vote. If that were the case, we would have a prime rate of about 150 basis points lower than it is today,” he said.

Botha told SABC News that representatives from a diverse group of industry bodies should also be represented.

These include the Development Bank of Southern Africa, the Small Business Institute, and the SA Institute of Civil Engineering.

“You should also include the banking association, the SA Chamber of Commerce and Industry, and bond originators in South Africa,” he said.

“We should include people with an intimate knowledge of how much financial pain people suffer when interest rates are unnecessarily high.”


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