War in the Middle East sparks interest rate warning

ONE of the few tools available to contain a dramatic petrol price increase resulting from the Middle East war is for the South African Reserve Bank (SARB) to raise interest rates.

- THAMI MAGUBANE

Economists believe that there is a real possibility the SARB would increase interest rates if the war between the USA, Israel, and Iran persists. They suggest that an interest rate hike would serve to boost the exchange rate of the rand, thereby cushioning against the oil price increase and managing inflation.

They have warned that a full-blown price spike could prove devastating for the country, stating that the government has very few choices in mitigating the increase in energy costs.

Economist Dawie Roodt said one option for South Africa to counteract steep increases in oil prices is to increase interest rates. "There are things we can do, but not very much. As far as oil is concerned, we are price takers. Whatever the international price is, that's it. If you want it, you have to pay for it; there is not much we can do about it.