The Russia-Ukraine conflict could hurt South Africa’s financial stability through rising food and fuel inflation, lower economic growth, and high unemployment, South Africa’s central bank said on Wednesday.
Emerging markets have been unduly impacted by the Russia-Ukraine crisis through increases in the price of oil, gas, wheat, and other grains, forcing central banks to tighten monetary policy even at the risk of undermining economic growth.
South Africa’s central bank last week increased its prime lending rate by 50 basis points to 4.75 percent, its highest increase in six years, to rein in inflation.
In its biannual health check of the financial system, the South African Reserve Bank (SARB) said that while the financial system of Africa’s most advanced economy was “resilient”, stagflation fears could exacerbate inequality and slow growth.
Stagflation is characterized by a prolonged period of high inflation, lower economic growth, and high unemployment.
The SARB said in 2022 it will set up a deposit insurance company that would insure deposits of almost 90 percent of depositors with a proposed coverage level of 100,000 rands.
(With input from Reuters)