Vol.2 No.25, 25 September 2002
Letter to the Governor of the South African Reserve Bank
Reserve Bank of South Africa.
14 September 2002
Dear Tito Mboweni,
On behalf of the SA New Economics (SANE) network I wish to express our concern at your decision, together with MPC, to raise the Repo rate again.
First, the present macro-economic paradigm puts inflation-targeting above all other considerations, including growth and employment. We do not agree with that paradigm. We think that growth that produces employment should be the overriding consideration, because it is vital for our country. Employment and poverty alleviation will spread our political liberation to the economic sphere and so spread its benefits to the whole of our population. Thus it will begin to address the greatest danger to our political liberation - namely the alienation of poor and low-paid people. It will also attract investment, both local and foreign. Research internationally show that investors are much less interested in inflation than in growth potential.
But, second, even within the present paradigm, the hike in interest rates can only make inflation worse. Even monetarist economists accept that supply-side inflation is hardly, if at all, affected by interest rates. To the extent that current inflation is demand-led, it is due to spending by top income earners, who are hardly affected by changes in interest rates. Taxation is the best way to address their spending.
The greatest influences on our current inflation are supply-led. It is the result of oil price rises, which work their way through the system, the cost to the consumer of food like maize, which is denominated in dollars, and our under-valued currency, which raises the cost of our imports. The rise in interest rates will affect these not at all.
On the contrary, the rise in the rate of interest will put up the cost of living for everyone - and most painfully for the poor and middle classes, via housing bond costs for a start. It will also slow development. That translates into higher unemployment and more poverty and destitution. That in turn translates into more despair, more misery, more hunger, more child neglect and abuse and more crime - the daily experience of people working in civil society. Compassion apart, all of that discourages investment further.
Chairperson, SANE Board of Trustees
© South African New Economics Network 2006. Page generated at 17:11; 24 September 2006