It should be clear to all South Africans now that the mandate of the SARB needs to be urgently revisited. This should be a priority area for our parliament. The incompetence of the MPC to properly respond to the macroeconomic imbalances that still exists in our economy is patently clear from the MPC statement.

The Committee acknowledges that demand push factors have completely given way to a recessionary situation. It is failing to inform South Africans about the size of the negative deviation of actual production from potential. It talks about the output gap without telling us what the state of the gap actually is.

Estimates of the quarterly model of the SARB show that excess demand pressures have a small impact in determining inflation dynamics. This means that the MPC has to generate large recessionary gaps through its conservative interest rate policy to control inflation.

The MPC has failed to show in what way its interest rate decision is in line with the mandate of “achieving and maintaining price stability within the context of balanced growth and development”. The MPC continues to incompetently and partially interpret its mandate, despite its defects.

The South African economy has experienced 179 000 job losses just in the first quarter of 2009. This does not take into account continuing job losses, jobs lost since 2008, and job opportunities lost because of MPC’s tight interest rate policies.

In the first quarter of 2009 alone an estimated 897 000 South Africans face the prospect of living in poverty, thereby adding a burden to the fiscus of the developmental state that we seek to build. There is no way that the timid interest rate decision of the MPC is sensitive to this reality.

The MPC has also displayed gross incompetence in responding to the current imbalances in the South African economy. It builds a case for a moderation in the inflation forecast outlook on the basis of “a more favourable exchange rate assumption”.

The SARB strives for a strong exchange rate in order to contain inflation. That is why it is too timid in the face of unbalanced growth and development. The mandate of the SARB, despite its weaknesses, is to pursue price stability in the context of balanced growth and development.

COSATU argues that the MPC pursues price stability at all cost! A strong exchange rate, whilst indeed it contributes to inflation control, also generates massive imbalances in the current account. There is no way that a developmental policy of expansionary infrastructure spending will have maximum impact in the context of a strong exchange rate.

The MPC has got it grossly wrong, even on the basis of its statement, to still use inflation expectations as a guide even in the context of a recession. Inflationary pressures are not from demand push factors. They emanate from the supply side. The Committee itself states that “the main upside risk to the inflation outlook comes from cost-push pressures”. These are factors that the MPC cannot do anything about, but also these factors do not begin now to be the main drivers of inflation.

The MPC statement says nothing about how its decisions address existing macroeconomic imbalances. The Committee is also silent on how its decisions will assist fiscal policy in stemming the tide of job losses, and support aggregate demand. Only noting the reality of job losses and nevertheless continuing to bury its head in the sand does not indicate concern for employment.

The high interest rate differential strengthens the rand and draws in imports. This thereby weakens domestic sectors, and fails to attract foreign direct investment but only attracts speculators. It creates gross macroeconomic imbalances.

COSATU therefore wishes to highlight the last sentence of the MPC statement, which sums up everything that is wrong with the MPC’s policy: “The MPC remains fully committed to its mandate of achieving and maintaining price stability, even if this is in the context of unbalanced growth and job losses”.

COSATU will be arguing vigorously within Nedlac and the Alliance for a complete review of interest rate policy and will be mobilising its members to campaign for reductions in the repo rate, to kick-start economic recovery and save and create jobs.