Economist cautions against interest rate hikes amid economic uncertainty
Image: Thobile Mathonsi / Independent Newspapers
South African Reserve Bank (SARB) governor Lesetja Kganyago has strongly advocated for the country to lower its inflation target from 4.5% to 3%.
Experts argue that a lower inflation target would improve price stability, reduce borrowing costs and enhance investor confidence in the long term. However, many feel it would entail some short term 'pain' for the sake of long-term gain.
Yet tightening monetary policy could be a dangerous move in the current economic climate, warns Frederick Mitchell, chief economist at Aluma Capital.
The US says it intends to impose a 30% tariff on South African goods, with threats of a further 10% tariff targeting BRICS countries. This could plunge many industries into crisis.
Industries that rely on exports, such as vehicles, citrus and mineral commodities, are particularly vulnerable. These sectors are already under stress and additional tariffs could hinder economic growth and exacerbate the country's already high unemployment rate of over 30%.
Within this context, the SARB faces a constrained path, Mitchell said.
'Conventional wisdom suggests that raising interest rates can curb inflation, yet in the current environment, where inflation remains subdued but economic growth is threatened, tightening monetary policy may exact an economic toll without addressing the underlying trade issues,' Mitchell explained.
Video Player is loading.
Play Video
Play
Unmute
Current Time
0:00
/
Duration
-:-
Loaded :
0%
Stream Type LIVE
Seek to live, currently behind live
LIVE
Remaining Time
-
0:00
This is a modal window.
Beginning of dialog window. Escape will cancel and close the window.
Text Color White Black Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Transparent Semi-Transparent Opaque
Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps
Reset
restore all settings to the default values Done
Close Modal Dialog
End of dialog window.
Advertisement
Video Player is loading.
Play Video
Play
Unmute
Current Time
0:00
/
Duration
-:-
Loaded :
0%
Stream Type LIVE
Seek to live, currently behind live
LIVE
Remaining Time
-
0:00
This is a modal window.
Beginning of dialog window. Escape will cancel and close the window.
Text Color White Black Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Transparent Semi-Transparent Opaque
Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps
Reset
restore all settings to the default values Done
Close Modal Dialog
End of dialog window.
Next
Stay
Close ✕
As SARB Governor Lesetja Kganyago has noted, inflation is expected to remain within the target range, but global trade war uncertainties loom large. Higher tariffs and potential retaliatory measures could put a damper on South Africa's economic recovery.
'Increasing interest rates in such a fragile environment risks stifling growth further, especially as global economic slowdown cues stemming from China's potential slowdown and trade tensions compound the problem,' he added.
'Given that South Africa's economy is highly reliant on exports and sensitive to external shocks, the restrictive monetary stance could deepen recessionary pressures without equipping the economy to withstand the imminent trade disruptions.'
Although the government's fiscal space remains limited, an over-reliance on monetary policy to counteract trade barriers would neither be prudent nor effective.
Mitchell believes the focus should remain on defending economic stability through fiscal prudence and resistance to over-tightening monetary policy in relation to inflation. Furthermore, policymakers should prioritise diplomatic engagement and trade negotiations.
'While efforts to curb inflation are vital, the scope for interest rate hikes in response to global trade tensions and tariffs is limited. Such measures risk further slowing economic growth, increasing unemployment, and undermining investor confidence,' Mitchell said.
'A prudent approach would involve safeguarding industry competitiveness and fostering diplomatic solutions, recognising that the health of South Africa's economy hinges on resilient trade relations and sound fiscal management rather than aggressive rate hikes amid uncertain international conditions.' Get your news on the go, click here to join the Cape Argus News WhatsApp channel.
Cape Argus
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
IOL News
an hour ago
- IOL News
South Africa's richest woman Magda Wierzycka considers returning due to UK tax changes
South African billionaire and Sygnia CEO Magda Wierzycka says she may be forced to return to South Africa Image: X / Magda Wierzycka South African billionaire and Sygnia CEO Magda Wierzycka says she may be forced to return to South Africa because of tax changes proposed by the UK government. Magda Wierzycka left South Africa several years ago, citing safety concerns linked to her outspoken fight against corruption. At the time, she claimed she would never return to the country.. Wierzycka is estimated to be worth $250 million, making her one of South Africa's richest women. While her publicly traded shares in Sygnia are said to be valued at around USD 114 million (R 2 billion), her total wealth includes private assets and investments. However, the UK's recent tax changes targeting non-domiciled residents, including the introduction of inheritance tax on overseas assets, have put her future in London in doubt. Wierzycka has said that these policies could force her to relocate back to South Africa. 'In my situation, let's assume I die right now, my estate and the assets that I have in my trust would be subject to inheritance tax here immediately,' she said in an interview with SKY News. She added that South Africa's foreign exchange controls complicate matters further. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ 'South Africa has these kinds of restrictions on the free movement of cash out of the country. So, you know, it's a situation where my estate might, my children might not be able to settle the bill in the UK. 'I was in the midst of raising a fourth fund to invest solely into the UK... The message to my investors is we'll be deploying the capital around the world. We are not coming to the UK". IOL Business Get your news on the go, click here to join the IOL News WhatsApp channel
The Citizen
an hour ago
- The Citizen
Bitget surges forward in South Africa with crypto, stocks, derivatives, and cards – powering the future of digital finance
With more than 40 000 users and an average monthly trading volume of 70 million USDT on the platform, Bitget is now emerging as a key player in the country's digital finance space. As cryptocurrency adoption accelerates across Africa, South Africa is quickly becoming one of the continent's most active hubs for digital asset trading. Bitget, one of the world's leading cryptocurrency exchanges and Web3 companies, officially operates in South Africa through its locally regulated entity, Parsa Financial Services (Pty) Ltd (FSP No: 52563), authorised under the Financial Advisory and Intermediary Services (FAIS) Act. This ensures users in South Africa have access to a secure and regulated platform for digital asset services. A comprehensive financial gateway: Crypto, stocks, derivatives & cards Bitget's launch in South Africa isn't just about crypto trading. The platform introduces a full suite of financial offerings designed to give users the power to invest, trade, and spend with ease: Crypto and futures trading South African users can access a robust crypto trading experience across spot and derivatives markets, with a wide range of ZAR trading pairs and advanced trading tools. Bitget is widely recognised for its copy trading feature, allowing newcomers to replicate the strategies of top traders with one click. Xstocks – Tokenised Global Stocks Onchain In a bold step towards traditional finance integration, Bitget has launched Xstocks, allowing users to trade tokenised stocks like Apple, Tesla, and Amazon directly on-chain. This provides a seamless bridge between Web2 equities and the decentralised world of crypto – all with 24/7 access and no traditional brokerage middlemen. Learn more about Xstocks ZAR Fiat Channel: Easy Deposits with Callpay To make onboarding easier, Bitget has integrated ZAR deposit services through Callpay. This allows users to fund their accounts in local currency with fast, reliable payment options. More on ZAR deposits Crypto cards for everyday spending With the Bitget Card, South African users can spend crypto like cash, both online and in-store. The card offers seamless conversion from digital assets to fiat at the point of sale, making everyday spending easier than ever. Bitget's position as a top 3 global exchange in derivatives volume is further backed by its strong focus on transparency and compliance. According to a 2025 report co-published with Bitget consistently ranks among the most liquid and trusted platforms for altcoin derivatives. Read the full report. Moreover, Bitget is one of the few exchanges globally that maintains 100% Proof-of-Reserves. This means that every user's assets are fully backed and verifiable on-chain, giving customers peace of mind and ensuring Bitget never lends out or rehypothecates user funds. In addition, Bitget's Protection Fund, now valued at 742 million (as of 4 August 2025), is designed to cover users against unexpected losses due to hacks or extreme market volatility. This fund is self-insured, independently managed, and regularly audited, demonstrating Bitget's long-term commitment to user safety and financial transparency. Bitget's commitment to South Africa goes beyond product offerings. With localised support, regulatory alignment, and tailored partnerships, Bitget is positioning itself to be the go-to crypto exchange for South African investors, traders, and innovators. With initiatives such as Blockchain4Youth and Blockchain4Her, Bitget is investing in South Africa's youth through specialised education on blockchain and school sports sponsorships. As adoption grows and the lines between traditional finance and Web3 continue to blur, Bitget is here to help users across South Africa trade smarter, invest globally, and spend locally.
The Citizen
2 hours ago
- The Citizen
Weekly economic wrap: US tariffs come into effect, rand suffers, but recovers
With the US tariffs poised to hit this week, the rand fell to its lowest against the dollar but recovered by the end of the week. In what would normally would have been a quiet week on the economic front, the implementation of the Trump tariffs this week took all the headlines, especially since South Africa is stuck with a 30% tariff on goods exported to the US. Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER), says increased bets on a Fed rate cut supported the gold price last week. 'Lower interest rates tend to boost non-yielding assets like gold, which is also benefiting from safe-haven demand amid rising concerns over a US economic slowdown. 'Recent data showed services sector stagnation, weak job growth and slowing consumer spending, partly linked to tariff-related pressures.' On the currency front, she says, broad US dollar weakness amid economic concerns helped the rand close stronger this week. The rand gained 1.7% against the dollar and 0.2%/euro and 0.4%/pound sterling. ALSO READ: US tariff an existential threat for a third of metals and engineering sector Solomon also points out that oil prices decreased after OPEC+ agreed on Sunday to increase oil production by 547 000 barrels per day for September, lifting fears of a global oversupply at a time when the US-led trade war is weighing on economic growth and energy demand. The potential ceasefire between Russia and Ukraine also put downward pressure on the oil price. Oil and gold react to US tariffs Bianca Botes, director at Citadel Global, says Brent crude is hovering near $66/barrel and is set for its worst week since late June as optimism around a potential Trump–Putin summit eased supply concerns. 'Sanctions on Indian oil imports from Russia and hints at broader tariffs on Chinese goods kept trade risks alive but expectations of higher output from the OPEC+ and slower demand growth weighed heavily.' ALSO READ: As if US tariff is not enough, more bad news for South African exporters Gold eased to about $3.380/ounce as traders took profits, although it remained on track for a second consecutive weekly gain, she says. 'Support came from the softer US economic outlook, tariff-related uncertainty and ongoing central bank purchases, including China's ninth straight month of buying. New US import duties on gold bars tightened supply prospects, adding a modicum of support to prices.' Rand looking much better despite dipping with US tariffs Botes says the rand strengthened to below R17.80/$, benefitting from a softer greenback and hopes for Fed cuts, although sentiment remained fragile as South Africa prepares for steep US tariffs on a wide range of its exports. Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, say the rand benefited from a broadly weaker US currency. 'Confirmation that president Cyril Ramaphosa had a telephone conversation with US president Donald Trump on Wednesday also buoyed the local unit. The rand was trading around R17.72/$ on Friday afternoon, from R18.05 last Friday. ALSO READ: Economic activity slowly improving although economic pressure persists They also believe that the oil price fell over the week after Trump indicated that he would be meeting with Russian president Vladimir Putin, although Putin has not honoured many of the US demands for a ceasefire with Ukraine. 'Higher prospects of the end of the Russia-Ukraine war have raised hopes of oil supply, pushing the oil price to $68.50 per barrel this morning. The gold price is higher at around $3 401 an ounce after reports that the US will reclassify gold imports, resulting in import tariffs being levied on 1 kilogram gold bars. PMIs are still looking up despite US tariffs The Absa Purchasing Managers' Index (PMI) recorded its first expansion in nine months, increasing by 2.3 points to 50.8 in July. Among the sub-components, new sales orders increased significantly, up 9.7 points to 55.9. Nadia Matulich, economist at the BER, says this reflected stronger domestic and international demand. The supplier deliveries index also ticked higher, driven by the rise in orders, although some suppliers noted that regulatory issues had become significant supply chain bottlenecks. ALSO READ: US tariff of 30%: Rand weakest in 3 months, thousands of jobs in danger Manufacturers remained cautious amid ongoing global uncertainty. While business activity improved by 5.2 points, it remained in contractionary territory, which likely contributed to the decline in the employment index, down 6 points to 43.7. The purchasing price index rose again, pointing to mounting cost pressures. 'While current conditions suggest some resilience, the longer-term outlook has softened. The index tracking expected business conditions in six months fell from 62.5 to 56.4,' she says. S&P PMI in expansionary territory for the third month The S&P Global South Africa PMI, which includes the services sector, also edged higher in July, increasing from 50.1 to 50.3 and marking a third consecutive month in expansionary territory. Growth was supported by new sales orders and employment, with respondents reporting an uptick in client activity and a mix of both permanent and temporary hires. Matulich says the demand increase was driven primarily by domestic sales, with exports falling for the fourth straight month. 'Output remained broadly unchanged, but firms noted stabilising supply chains. This was reflected in higher purchasing, lower inventories and reduced backlogs. Input costs accelerated to a three-month high, but firms remained cautious about passing these costs on to consumers. Notably, business expectations over the next 12 months improved, recovering from a near four-year low in June.'
