The Durban Chamber of Commerce and Industry has been long concerned by the monetary policy dynamics given recent fluctuations in the rand and inflationary pressures facing the South African economy. This 50bps rake hike by the South African Reserve Bank (SARB) mainly due to a significantly depreciated exchange rate, and higher expected food price inflation comes at a time when the economic conditions are fairly weak, and the current inflation forecasts are breaching the upper inflation band in the short term. As a first point to note, it remains to be seen whether such measures by the SARB are enough to curtail inflation given all other factors outside of the Bank’s control.

The rand has depreciated significantly from January 2015. That coupled with the current drought represents significant food price inflation as well as a stronger exchange rate pass through. The Chamber has made submissions against the proposed Eskom 8% tariff increase, which could see electricity tariffs increase by a minimum of 16.6% as early as April this year. All these factors combined mean the SARB has taken this stance with the aim of inflation targeting. But what remains to be seen is the impact on GDP as such a rate hike will further stifle local economic activity in an already depressed global economy.

South African consumers will bear the brunt of this rate hike, on top of the food pricing, electricity tariff increases and the exchange rate pass-through taking effect by the end of the first quarter of 2016. The real issue is fast becoming whether we are not going into a recession especially as GDP growth forecasts have been downgraded to as low as 0.9% for 2016. The focus is now squarely on the Treasury’s Budget on February 24th to look at macroeconomic policy responses to alleviating the local economy. The Chamber calls for strong policy positions that put the focus squarely on GDP growth and also support commerce and industry.

The Durban Chamber of Commerce and Industry
Tel: +27 31 335 1000
chamber@durbanchamber.co.za
http://durbanchamber.co.za