What caused interest rates to go up To avoid confusion in this debate, the real causes for the recent sharp rise in interest rates should be revisited. It will be recalled that in the first quarter of this year there was wide-spread optimism that interest rates in South Africa could decline further during the course of 1998.
The Reserve Bank had already reduced its Bank rate from 17 to 16 per cent in October 1997, and to 15 per cent on 9 March 1998. Inflation was declining, foreign portfolio investments flowed into the country, the foreign reserves were rising and the exchange rate of the rand was under pressure to appreciate.