John Loos argues that while the South African Reserve Bank’s recent 25-basis-point interest rate hike may disappoint consumers and businesses seeking economic relief, calls for lower rates overlook the longer-term consequences of sustained debt-driven growth.

Although lower interest rates can stimulate borrowing, spending, and economic activity in the short term, they often encourage higher household indebtedness without addressing the structural constraints that limit South Africa’s growth potential.

Using historical comparisons, Loos shows that household debt-servicing costs are influenced not only by interest rates but also by the level of debt accumulated over time. He notes that in 2003, households faced significantly higher interest rates than today, yet experienced less financial strain because debt levels were much lower. By contrast, modern households carry far greater debt burdens, making them more sensitive to even modest increases in interest rates.

The analysis suggests that repeated periods of low interest rates can leave households and the broader economy increasingly vulnerable, as rising indebtedness erodes the benefits of future monetary easing.

Loos concludes that sustainable economic growth, employment creation, and stronger household incomes depend primarily on structural reforms, increased investment in human and physical capital, and improved economic incentives, rather than on persistently lower interest rates. Interest rate policy should therefore remain focused on maintaining long-term macroeconomic and price stability.