The decision by the South African Reserve Bank (SARB) last week to hike interest rates by 25 basis points in response to rising global inflation is the correct call, business organisation Business Leadership South Africa (BLSA) CEO Busi Mavuso writes in her latest weekly newsletter.

“With inflation at 4% in April and the SARB projecting it will average 4.4% for the year, above its 3% target, the decisive response was essential. Price stability is critical to businesses’ ability to plan and invest. It also protects consumers, particularly the poor, who are most exposed when prices rise. Economists now expect further hikes this year. That may be uncomfortable in the short term, but it is important for long-term stability,” Mavuso posits.

She highlights that the country is facing current global headwinds from a position of relative strength, compared with previous times, with its most improved public finances in a decade and structural reforms that are beginning to show real results.

Mavuso points out that the improvement is reflected in last week’s ratings actions, with Moody’s assigning a positive outlook and S&P affirming that it maintains its positive outlook on South Africa’s credit rating, and potential for this to improve.

“Despite the global turmoil, the rand has held up relatively well, as have South African bonds and equities. We are benefitting from high global commodity prices – industrial metals, gold and platinum – which are providing meaningful support.

“And an independent Reserve Bank, free of political interference, remains one of our most powerful signals to global investors. South Africa is behaving like a safe haven in the current environment. That is what years of reform and institutional discipline have bought us,” she acclaims.

Mavuso calls for momentum on the reform programme to continue, identifying three remaining priorities of logistics, electricity and a capable State.

“Transnet and the ports must be opened further to private investment; the reform of our rail network and port concessions must move from policy commitment to operational reality . . .

“We need a competitive electricity market with an independent transmission system operator – the delay on the Transmission System Operator is a vulnerability we cannot afford . . . The quality of public services and accountability that has delivered the improved fiscal position must be extended across the public sector,” she explains.

“What this moment shows is that reform pays off precisely when a crisis strikes. BLSA will continue pressing government to hold the fiscal line, accelerate reforms and deliver the capable State our economy needs,” Mavuso adds.