The South African Reserve Bank’s 25 basis point interest rate increase on Thursday might satisfy inflation hawks and monetary purists but for millions of struggling South Africans and businesses under immense financial pressure, it will feel like another blow to an economy desperately trying to find growth.
Perhaps the bigger question South Africa should be asking is: “Where is the national economic vision to grow the economy?”
For weeks, I warned in multiple articles that rising oil prices, Middle East instability, a weakening rand and fuel-driven inflationary pressure would inevitably begin filtering into South African inflation data.
In my April 5 article, A world on edge, I warned that inflation would begin accelerating sharply as global instability filtered into fuel and transport costs. It happened; inflation accelerated to 4%. And again, in my May 3 article, Fighting inflation or killing growth? I argued that South Africa is moving toward a dangerous economic contradiction: using interest rates to suppress demand while the inflationary pressure itself is largely supply-side driven.
That contradiction has now become a reality. Because let us be brutally honest about what is driving inflation.
South Africans are not overspending. The economy is not overheating. Consumers are not recklessly borrowing into prosperity.
The inflationary pressure is being driven largely by external shocks:
- Higher global oil prices.
- Middle East conflict.
- Fuel price escalation.
- Imported inflation through a weaker rand.
- Higher transport and logistics costs.
These are supply-side pressures. And yet South Africa continues responding primarily through demand-side monetary tightening. In simple terms, we are trying to fight externally driven inflation by slowing a weak domestic economy even further. Higher interest rates reduce borrowing, spending, business expansion, investment and aggregate demand.
But South Africa’s core problem is not excessive demand. It is insufficient growth.
The distinction matters, because every additional rate increase lands on top of an economy carrying weak growth, infrastructure instability, unemployment pressure and rising living costs.
The average South African does not experience monetary policy through economic theory. They experience it through higher bond repayments, more expensive vehicle finance and reduced disposable income.
At the same time, fuel prices remain elevated, food inflation is building and the rand remains vulnerable.
Desperate need for growth
The combination becomes deeply dangerous for a low-growth economy.
South Africa cannot continue responding to every external shock by tightening into weakness. At some point, the country must confront the deeper economic reality: we desperately need growth.
Growth creates jobs, increases disposable income, improves business confidence, strengthens tax revenue collection for Sars, improves fiscal sustainability and reduces social pressure.
A growing economy becomes easier to govern.
A stagnating economy becomes harder to stabilise.
South Africa cannot sustainably tax, borrow or regulate its way into prosperity. It must grow its way there and that requires leadership, urgency and economic vision.
Where is the aggressive national growth strategy? Where is the coordinated drive to unlock infrastructure investment, logistics reform, energy expansion and manufacturing growth?
South Africa can no longer afford ideological hesitation around public-private partnerships because while government capacity weakens in many areas, South African business remains far stronger and more capable than perhaps even business itself fully appreciates.
The country possesses world-class financial institutions, engineering capability, entrepreneurial talent and globally competitive sectors.
Need for bold economic leadership
What has been missing is coordinated execution and bold economic leadership.
Rapid action is required, not endless policy drift and not slow managed decline. Action.
Despite the pressures, South Africa has enormous opportunity. But opportunities do not automatically translate into growth. Execution matters.
Thursday’s interest rate increase might ultimately prove prudent from a narrow inflation-targeting perspective.
But from a broader economic growth perspective, many South Africans will legitimately ask whether we are slowly tightening a struggling economy deeper into weakness. That is the real debate the country now needs to have.
- Van Doesburgh is an economist, head of economics at CPUT and a regular commentator on South Africa’s economic landscape.
- South Africa’s recent 25 basis point interest rate hike aims to control inflation but risks further harming a struggling economy with weak growth and high financial pressure on citizens and businesses.
- Inflation is largely driven by external, supply-side shocks such as rising global oil prices, Middle East conflict, fuel price hikes, a weaker rand, and increased transport costs—factors not effectively addressed by demand-side monetary tightening.
- Continued interest rate increases suppress borrowing, spending, investment, and demand, worsening economic stagnation without addressing the root issue of insufficient growth.
- The country urgently needs a bold, coordinated national economic strategy focused on growth through infrastructure investment, energy expansion, manufacturing, and improved public-private partnerships.
- Without strong economic leadership and swift execution to unlock South Africa’s potential, the economy risks further decline despite monetary policy aiming to curb inflation.
