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Fanie Brink, Independent Agricultural Economist

"Totally ridiculous! - Russia has invaded the Ukraine and not the local or international consumers but the Reserve Bank and other central banks in the world, such as the US Federal Reserve and the Bank of England, have raised their interest rates because they want to punish consumers with higher interest rates who they believe are responsible for the higher fuel and food prices in the world,” says Fanie Brink, an independent agricultural economist.

He responded to the announcement by the President of the Reserve Bank, Lesetja Kganyago, that the lending rate of the Bank would be increased by 25 basis points today.

The central banks can have no influence on the supply side of the economy. Their interest rate policy is aimed at punishing consumers on the demand side of the economy with higher interest rates for price increases for which they are in almost all cases not responsible for. Just like with the invasion of Ukraine by Russia which has skyrocketed the prices of raw materials such as crude oil, wheat, vegetable oil and fertilisers.

Russia's president Vladimir Putin is also not going to withdraw from Ukraine just because the world's central banks have raised interest rates. By no means!

"This increase in interest rates by central banks is again one of the best classic examples in the history of the single biggest delusion in economic science."

The inflation rate is determined by all the local and international political and economic factors that influence the demand and supply of goods and services that is now very clearly the case again due to the war between Russia and Ukraine and not by changes in interest rates!

"There is no evidence in the world to substantiate this claim of central banks that interest rate hikes can control the inflation rate."


Simple statistical analyses have showed very clearly that the changes in interest rates can in no way explain the changes in the inflation rate, the value of the currency or economic growth because all three of these economic variables are determined by the operation of the market forces of supply and demand and not by changes in interest rates.”

The Reserve Bank assumes that if fuel prices rise, it is because consumers consume more fuel, while the price of fuel has nothing to do with fuel consumption because the government controls the price according to a set formula.

The Bank does not accept the fact that consumers will consume less fuel if the price rises as over the past few months and especially now after Russia has invaded Ukraine - the most basic economic principle in the economy! The current increases in fuel, wheat and fertiliser prices have exactly nothing to do with its consumption but are purely the result of the war in Ukraine.

The central banks in the world actually believe that they are exalted above the functioning of the market forces of supply and demand!

The same delusion of the central banks also applies as far as electricity tariffs are concerned that are also determined by the government.

In fact, there is no way the central banks can exercise control over price increases because the influence of interest rates to stabilise prices is negligibly small. The interest costs that consumers pay do not even appear on the list of consumer items that Statistics SA uses to determine the consumer price index because it amounts to only about 2,4% of the total expenditure of consumers.

 However, a greater irony is now taking place again because the central banks in fact believe that their interest rate increases to cool the demand side of the economy, so they believe, can also control problems on the supply side of the economy such as the current rising prices and shortages of basic raw materials including crude oil, wheat, vegetable oil and fertilisers.

Exactly the same delusion of the central banks in the nineties will now play itself out again when the crude oil price rose to $150 a barrel and the maize price doubled from $130 to $260 a ton on the Chicago Board of Trade in the USA.

The Reserve Bank and the other central banks increased their lending rates by an average of 5 percentage points at that time, but not long after the crude oil price dropped again to below $50 a barrel and the maize price to $130 a ton due to various specific changes in the demand and supply of crude oil and maize (such as crude oil and wheat at present) and not due to interest rate hikes.

Needless to say, how wonderful the central banks felt about how well their interest rate policies worked which is not correct and is in fact the biggest delusion in economic science!!

There is simply no way that the Reserve Bank can "anchor inflation" or "support the economy," which the Bank regularly claims, while no evidence exists to substantiate these claims.

The mandate of the Reserve Bank is in any case “to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic” as prescribe by article 244 of the Constitution and not to stabilise prices or to keep the inflation rate in check!

The value of the currency is also, just like the inflation rate and economic growth, determined by all the local and international political and economic factors that influence the supply and demand of the currency which is only one of many factors that can have an influence on "balanced and sustainable economic growth."

Fortunately, the impact of interest rates on the economy is almost negligibly small, yet large enough to take the central banks on an extremely enjoyable "ego trip" again because they lowered the inflation rate after Putin withdrew from the Ukraine and the prices of the relevant raw material returned to normal again,” according to Brink.