Relying only on interest rate hikes in an effort to protect the rand’s value is not the solution as political and economic instability bears the blame and consumers ultimately pay the price.
Although the Reserve Bank is increasing the interest rate in an effort to fulfil its mandate of protecting the rand and keeping inflation in check, it must be realized that this is not currently yielding the expected results, says Thys van Zyl, head of product development at Everest Wealth.
The interest rate has been increased ten times since November 2021 by a total of 4.75 percentage points, with economists expecting a possible further increase of 25 basis points.
“Inflation has already begun to decline reaching 5.4% in June and is now within the Reserve Bank’s target band. The last interest rate hike in May pushed the rand to its weakest level yet against the dollar. A further interest rate hike is therefore not the answer when trying to protect the rand’s value. The weakness of the rand is a result of bad decisions by the government and must therefore be left to it to correct.”
Consumers are being forced to their knees as a result of the government’s missteps that are causing the rand to seesaw.
“It is ironic that the ANC wants to intervene with the Reserve Bank to prevent another interest rate increase when it is largely the cause of the problem. Government’s macroeconomic policy and other self-created crises cause the problems.”
Developments regarding the upcoming Brics summit and recent uncertainty about whether Russia’s president will attend it in person are causing the rand to seesaw while the ongoing power crisis is costing the economy billions of rands, fuelling inflation and stalling economic growth.
“Allegations that South Africa has supplied weapons to Russia, as well as the country’s relations with Russia and the possible consequences this holds for the Agoa trade agreement as well as the grey listing have resulted in international investors avoiding the country. The government created its own problems. It is time for them to recognize this and actually put plans in place to get the economy moving again.”
Any further rate hikes would be catastrophic for consumers. “The interest rate must now be kept stable and then systematically adjusted downwards. Consumers are upset due to recent sharp increases in the interest rate as well as sharp increases in food prices, the price of petrol, power prices and other living costs. It is time to protect consumers before the last straw breaks the camel’s back.”