South Africans carrying mortgages and other debt tied to the prime lending rate are now paying more each month. Last month the South African Reserve Bank raised its benchmark rate by 25 basis points to 7.25%, a unanimous decision by the monetary policy committee as it grew wary of inflationary risks stemming from the wars in Iran and Ukraine. For households, the move reflects the bank’s effort to stop elevated energy prices from feeding into broader price increases that become entrenched.
Governor Lesetja Kganyago, speaking on the sidelines of the International Monetary Fund and World Bank meetings in Bangkok on Friday, paired that caution with reassurance about the currency in people’s pockets and in the country’s trade. The rand, he told Bloomberg TV, has held up well despite the shock caused by the Iran war, a sign of growing confidence in the country’s economic outlook.
“Rand resilience has cushioned, but not shielded us from the shock,” he said. “The important thing is that the currency had been less volatile than it had been in the past, and it is a combination of push factors and a combination of pull factors.”
That resilience matters in practical terms. Higher prices for South Africa’s exports of key commodities, including gold and platinum, have helped offset the impact of higher fuel costs, keeping the terms of trade on a favourable footing, according to Kganyago. What the country earns abroad has continued to cover what it pays, softening the blow that global energy prices might otherwise deliver to businesses and consumers at home.
Kganyago attributed the rand’s performance to policy choices rather than luck. Lowering the inflation target to 3% last year, together with government efforts to pursue fiscal consolidation, has contributed to a decline in the risk premium investors demand to purchase the country’s bonds. A smaller premium means cheaper borrowing costs for the state, and by extension more room for public spending priorities.
He was careful, though, to frame the currency’s stability as conditional. “What could lead to the weakening of the rand would be if those things give up: If the terms of trade deteriorate, if monetary policy does not stay the course, and if fiscal policy does not stay the course,” Kganyago said. Continued rand resilience, he stressed, will hinge on South African macroeconomic policy remaining on track.
Meanwhile, the fiscal side of that bargain is where the government’s own record comes in. South Africa has made significant efforts to stabilise public finances in the past few years after a decade of overspending, improving its fiscal position. The payoff is expected to show when Finance Minister Enoch Godongwana tables his mid-term budget update next week, with the government forecast to report a growing primary budget surplus, driven by rising revenue exceeding non-interest expenditure.
For now, the Reserve Bank has signalled it is not locking itself into a fixed path. Kganyago repeated the bank’s reasoning on restrictive policy, aimed at stopping elevated energy prices from triggering second-round effects that entrench higher inflation, while stressing that rate decisions would be taken meeting by meeting. “The environment is uncertain. We will continue to assess the situation,” he said.
That approach leaves borrowers and savers alike watching each policy announcement for direction, in an economy where the currency has so far absorbed global shocks better than many expected, but where the governor has made clear the cushion depends on discipline being maintained at home.