Interest rate hikes ‘could do more harm than good’

SOUTH African Reserve Bank (SARB) governor Lesetja Kganyago has strongly advocated for the country to lower its inflation target from 4.5% to 3%.

- JASON WOOSEY

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%.