Statistics released today show that the South African economy only grew by 2.1% in the first quarter of this year, compared to a growth rate of 5.3% in the fourth quarter of last year. This really comes as no surprise as the first quarter of this year has been plagued by electricity shortages in the country and ever rising interest rates. The hardest hit sector was mining which dropped 22% in the first quarter. Manufacturing also declined by 1%. These two sectors are heavily reliant on electricity and any problems with electricity supply will affect their performance.

It is highly important that Eskom sort of the electricity situation in South Africa otherwise we will continue to see shrinking growth in the economy. The question now is, will the Reserve Bank increase interest rates now that it is evident that the economy is not growing by as much as many had thought? Increasing interest rates would not be good in terms of trying to grow the economy, but on the other hand, inflation continues to skyrocket in South Africa and the Reserve Bank has to increase interest rates in order to try curb the rising inflation.

TheRandToday.com team still feels the Reserve Bank will increase interest rates as they have to try bring the inflation rate back down to the target of 3 – 6%.

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