JOHANNESBURG. (Reuters). South Africa’s central banks warned on Wednesday of the potential for a Russia-Ukraine war spillover. The country could be hit with rising food and fuel prices, reduced economic growth, high unemployment and a loss of financial stability.

Russia-Ukraine’s crisis has adversely affected emerging markets through an increase in prices of oil, gas and wheat. Central banks were forced to tighten monetary policies even though they could be undermining growth.

South Africa’s central banking increased its prime lending interest rate by 50 basis point to 4.75% last week, the largest increase in six years. It did this to control inflation.

The South African Reserve Bank (SARB), in its biannual financial health inspection, stated that although Africa’s largest economy is “resilient”, there were concerns about stagflation and the possibility of inequality.

It stated that South Africa is still vulnerable to the spillover effects from global events, especially Russia-Ukraine’s war and global inflation concerns.

A prolonged period with high inflation, low economic growth, and high unemployment is known as stagflation.

In 2022, the SARB stated that it would create a deposit insurance firm to insure depositors up to 90%. The proposed coverage amount is 100,000 rand.

The report raised concerns about rising inflation and unequal growth, which could cause more social unrest such as the one in July 2013.

SARB pointed out that climate risk could affect the country’s insurance sector, still recovering from April floods, which left 448 dead. It also suggested that insurance costs may rise as more calamities occur.

According to it, rising debts, the possibility of an even more devastating wave of COVID-19 or rising cyberattacks pose risks for South Africa’s financial stability.

($1 = 15.6057 rand)