Last week the Central Bank of Eswatini left its discount rate unchanged at 6.75 per cent. Commercial banks are expected to hold their prime lending rate at 10.25 per cent until the next meeting. If you have a mortgage, a vehicle loan or business finance linked to prime, your repayments will not move because of this announcement.
Most readers will see that and turn the page. It is worth pausing, because doing nothing is the Bank’s most common decision. Of the 71 monetary policy statements published since 2011, 46 were holds. The Bank has raised rates 14 times and cut them 11. The rate has now stood at 6.75 per cent for seven consecutive meetings. One more and it will match the longest unchanged stretch on record, the eight meetings between September 2020 and November 2021.
What makes this particular hold worth attention is the backdrop against which it was made. Inflation has fallen to 2.6 per cent. The economy grew 6.1 per cent year on year in the first quarter. On both counts there was room to cut, and the Bank chose not to use it.
The answer is the most useful thing in the statement, and most of it has nothing to do with Eswatini.
The lilangeni is fixed one to one with the South African rand. That arrangement buys us price stability from a much larger economy, and it costs us most of our freedom to set interest rates independently. If money can earn meaningfully more in Johannesburg than in Mbabane, it will move, and our reserves will move with it.
The record shows how tight the constraint is. Across fifteen years of statements, our discount rate has never sat more than 0.75 percentage points below the South African Reserve Bank’s repo rate, nor more than 0.25 points above it. On average it has run 0.20 points below.
The SARB repo rate is currently 7.0 per cent. It was 6.75 per cent as recently as March, and South Africa raised it in May. South African inflation climbed to 5.0 per cent in June from 4.5 per cent in May, driven mainly by fuel and transport costs. Our own discount rate of 6.75 per cent therefore already sits a quarter of a point below Pretoria’s, close to the edge of the gap the Bank has historically been willing to run.
This is worth understanding, because it explains something that otherwise looks unfair. Our inflation is 2.4 percentage points below South Africa’s. We have brought prices under control faster than they have since 2024. And we still cannot price our own credit accordingly, because the exchange rate arrangement we depend on for stability carries a cost, and this is that cost.
Households live with a smaller version of the same problem. Anyone servicing a bond has learned that the monthly repayment is set by conditions they did not create and cannot influence. The only available response is to carry enough margin to absorb whatever the conditions do next.
Inflation is easing, with an asterisk
The Bank has revised its inflation forecast for 2026 down to 3.0 per cent from the 3.31 per cent it published in May. Headline inflation slowed to 2.6 per cent in June from 2.7 per cent in May, helped by food prices moderating and international oil prices easing.
That sounds like meaningful good news. Read against the Bank’s own record, it is closer to routine. The current-year forecast gets revised at almost every meeting, and revised heavily. The forecast for 2025 began that year at 5.25 per cent and ended it at 3.2 per cent. Against that history, a revision of 31 basis points after two months is ordinary housekeeping rather than a change of view.
The change of view sits further out, and it runs the other way. The Bank raised its 2027 inflation forecast to 4.35 per cent from 3.74 per cent, and its 2028 forecast to 3.55 per cent from 3.30 per cent. The picture it is describing is a good year followed by harder ones. It now expects the cost of living to rise faster in 2027 than it did two months ago.
Slower inflation still helps, though it is worth being precise about how. Money continues to lose purchasing power. It simply loses it more slowly. Think of the difference between a salary increase of E100 and one of E300. Neither makes you wealthy, but one leaves you in a noticeably better position, and inflation works the same way in reverse.
For a small business the benefit is predictability. It becomes easier to price products, budget for stock and negotiate with suppliers when next year’s costs are not a guess. That is the real value of stable prices, and it is why central banks talk about inflation more than anything else.
But this relief has a date on it. The Bank has told us when it expects the relief to end.
Growth that needs reading carefully
The headline growth figure is striking. Real GDP grew by 6.1 per cent in the first quarter of 2026, year on year on a seasonally adjusted basis, up from a revised 5.8 per cent in the fourth quarter of 2025. The improvement came mainly from a rebound in the secondary sector, with mixed results across the primary and tertiary sectors.
Two cautions before anyone celebrates. First, 6.1 per cent measures this quarter against the same quarter a year ago. It is not the speed the economy is travelling at today. On a quarteron-quarter basis the economy grew 1.1 per cent, following a quarter of no growth at all. That is a recovery from a weak base rather than a boom.
Second, growth creates the possibility of prosperity without distributing it. A retailer whose sales are flat will not feel reassured because GDP rose. A graduate still looking for work will struggle to celebrate a number that has yet to change anything in their own life. This is why nobody sensible judges an economy on a single statistic, and why the Bank weighs growth against inflation, credit, reserves and global risk before it touches the rate.
Borrowing, and whether it is being repaid
Credit extended to the private sector reached E23.9 billion at the end of May, up 10.6 per cent over the year. Households owed E9.8 billion of that. Businesses owed E13.2 billion.
Credit has always been one of the economy’s most useful tools. It allows families to buy homes they could never afford outright, lets entrepreneurs acquire machinery before they have accumulated years of profit, and enables businesses to expand on schedule rather than eventually. What matters is what the borrowing is for. A loan that raises future income is an investment. A loan that covers this month’s shortfall has moved a cost rather than removed it.
The statement also reports something the headlines skipped. The quality of bank loan books deteriorated in May. Non-performing loans rose 7.1 per cent over the year to E1.4 billion. The ratio of non-performing loans improved slightly to 6.9 per cent, but only because total lending grew faster than bad lending did. Close to seven emalangeni in every hundred lent out are not being repaid on time.
Public borrowing has moved in the same direction, faster. Total public debt reached E42.1 billion at the end of June, equal to 40.4 per cent of GDP, after rising 2.2 per cent in a single month. When the Bank started publishing this figure in 2020 it stood at E22.9 billion, or 31.4 per cent of GDP. Government debt has nearly doubled in six years and has grown faster than the economy that has to service it.
Stable interest rates can create a false sense of security. When repayments stop rising, borrowing begins to feel safe. The cost of the debt has stopped moving, but the obligation to repay it is exactly what it always was.
The country’s emergency fund
One figure in the statement deserves more attention than the interest rate.
As of 17 July, foreign reserves stood at E11.8 billion, enough to cover 2.6 months of imports. The conventional benchmark is three months. Eswatini has been at or below that line since 2019. In 2013 the country held roughly 4.8 months of cover. In May this year the figure fell to 2.0 months before a SACU receipt brought it back up.
Import cover is the national version of an emergency fund. It is the number of months the country could keep paying for what it buys from abroad if the money coming in stopped. Households are advised to hold three to six months of expenses for exactly the same reason. The country is holding 2.6, and that figure swings by a month depending on when a quarterly customs union transfer lands.
This is the clearest reason the Bank is not cutting. Reserves are what defends the peg. A rate cut that pushed money out of the country would be paid for out of a buffer that is already thin and already unpredictable.
It is also why recent statements have said the Bank continues to explore ways to bolster reserves. That is a polite way of saying the buffer is not where it should be.
The lesson beyond the numbers
Money rewards preparation. That has been the thread through every edition of this column. When we wrote about Dvuladvula, the lesson was that relief is not the same as progress. When we looked at financial systems, we argued that habits outperform intentions. When we examined borrowing, we concluded that debt should build tomorrow rather than pay for today.
This month’s statement makes the same case using national numbers. Inflation is down now and forecast higher later. Growth is real but narrow. Credit is expanding while repayment slips. Reserves sit below benchmark. Faced with all of that, the Bank has chosen to stay exactly where it is.
For households, the practical translation is to use this window rather than enjoy it. Expensive debt is cheaper to clear while rates are flat than after they move. An emergency fund is easier to build while inflation is at 2.6 per cent than when it is back near 4.35.
For small businesses, this is the moment to strengthen working capital, shorten the time it takes to collect what customers owe, and invest selectively rather than on the assumption that this year’s conditions will carry into next year.
The Bank has looked at improving numbers and concluded that improvement is not yet permission to relax. It has 2.6 months of cover it would like to be more, a debt load growing faster than the economy, and a currency arrangement that limits what it can do about either. Its response is to hold its position and keep watching.
Most of us are running a smaller version of the same balance sheet. The question worth asking this month has less to do with where interest rates are going than with how many months of cover you are carrying, and whether that number would survive the kind of year the Bank is forecasting for 2027.