South African businesses have warned that rising interest rates will further hurt the country's economic prospects.

The central bank raised rates one percent to 10.5% on Tuesday, prompting banks to raise rates for the first time since 1998.

The weak rand has seen South African consumer prices rise and the central bank will be hoping that the interest rate hike will limit spending and keep prices down.

But already, business leaders question whether the move will have the desired effect and will dampen the economy's growth prospects.

Gloom over rates

"There can be no doubt that economic prospects will be further sacrificed and will probably fail to deal with real economic consequences," the National African Federated Chamber of Commerce (NAFCOC) and the South African Chamber of Business said in a joint statement.

The two associations argue that the interest rate rise is unlikely to tackle inflation.

NAFCOC - the largely black business association - has warned many of its members, who rely on bank lending for start-up capital, could be squeezed by the rate rise.

SACOB's economist Richard Downing questioned whether domestic demand was so strong as to justify a rate rise.

He argues the higher prices can be attributed to a weaker rand, which has pushed import prices of goods, such as cars, higher.

Falling rand

The rand lost 37% of its value in 2001, hitting an all-time low of 13.85 to the US dollar in late December.

"If inflation pressures build up, you can't expect the Reserve Bank to sit around and twiddle its thumbs," South African Reserve Bank governor Tito Mboweni said on Wednesday.

The government has set a 3% to 6% inflation target range for this year and concern is growing that they are unlikely to meet it.

"Everyone knows inflation is going to go up this year in response to a weaker rand ... they are concerned that higher inflation might then feed through into higher wages and higher inflation expectations going forward and that is going to put the inflation target for next year in jeopardy," Investec's John Stopford told the BBC's World Business Report.