How more pain is brewing for South Africa’s economy

Johannesburg – South Africa’s economic recovery is facing renewed pressure after the South African Reserve Bank (SARB) raised interest rates again, with economists warning that higher borrowing costs could weigh on consumers, businesses and economic growth.

According to Daily Investor, North West University Business School economist Professor Raymond Parsons said the 25-basis-point increase could come at a significant cost to an economy that is already struggling to regain momentum.

The Monetary Policy Committee (MPC) raised the repo rate to 7.25%, the second increase this year, citing rising inflation risks linked largely to higher fuel prices and global energy disruptions. The decision took effect on Friday.

Parsons said there had been a “highly plausible, data-driven case” for the Reserve Bank to pause the rate, pointing to relatively contained underlying inflation.

“Whatever the MPC rationale for the further rate increase, it will inevitably now come at a cost in economic activity,” Parsons said, according to the report.

He warned that higher borrowing costs would have a negative effect on “business and consumer confidence at a time when the economy is struggling to regain momentum.”

Global shocks 

The South African Reserve Bank has meanwhile cut its 2026 growth forecast from 1.4% to 1.2%, after the economy contracted by 0.2% in the second quarter. Governor Lesetja Kganyago said global shocks were hurting the economy, although the bank still expects a rebound in the second half of the year.

“The global shocks are clearly hurting our economy,” Kganyago said, adding that growth risks were “skewed to the downside.”

Business Day reported that the rate hike came despite weak economic activity, with consumers now facing higher borrowing costs. The newspaper noted that the economy, which relies heavily on consumer demand, contracted in the second quarter.

Reuters reported that annual consumer inflation reached 4.4% in August, while the rand weakened following the rate decision. The central bank said inflation could rise above 5% later this year and early next year before easing as the fuel shock subsides.

The Reserve Bank has also maintained that structural reforms remain critical to improving South Africa’s longer-term growth prospects.

Kganyago said domestic reforms were the country’s “best growth option”, particularly measures aimed at improving productivity in the energy and transport sectors, while maintaining sustainable debt and lower inflation.

For households and businesses, however, the immediate challenge is the combination of weak growth, elevated inflation and higher interest rates – a combination that could keep pressure on the economy in the months ahead.

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