Reserve Bank warned it might drive unemployment after hiking rates

Critics have spoken against the South African Reserve Bank's decision to raise interest rates by 25 basis points, with the Institute for Economic Justice (IEJ) warning that it will further burden struggling households and put additional strain on businesses. The Reserve Bank's Monetary Policy Committee (MPC) raised the repo rate to 7.25% and the prime lending rate to 10.75% to combat inflation.

However, IEJ argues that the bank should explore alternative methods to control inflation, rather than imposing additional costs on vulnerable groups.

IEJ believes that maintaining a stable inflation rate requires a comprehensive government strategy to reduce South Africa's reliance on imported inputs like refined oil and fertilizers. The organization suggests increasing food and fuel reserves in the short term, while investing in renewable energy and public transportation infrastructure in the long run.

The IEJ also points out the contradiction in South Africa's macroeconomic policy, stating that the recent rate hike disproportionally impacts workers, indebted households, and small businesses.

Neil Roets, CEO of Debt Rescue, predicts that higher borrowing costs will lead to job losses and a slowdown in economic growth. He notes that the pressure on household affordability could weaken consumer spending, further exacerbating the economic challenges. Farmers are also facing difficulties, with increased fuel, fertilizer, and input costs potentially leading to higher food prices for consumers, as an El Niño weather event could worsen farming conditions.

Despite the local economy contracting by 0.2% in the second quarter, the Reserve Bank's mandate remains focused on long-term price stability over short-term growth.