The South African Reserve Bank (SARB) has committed what, in financial markets, is apparently the greatest sin imaginable: it did… absolutely nothing in yesterday’s meeting of the Monetary Policy Committee and left the repo rate unchanged at 7%.
No rate hike. No dramatic flourish. No heroic attempt to outmuscle geopolitical turmoil on the other side of the planet. Just a steady hand on the steering wheel.
Financial markets responded in the only mature and rational way they know: they threw a tantrum.
Within hours, the rand became the world’s worst-performing currency of the day, shedding more than 2% against the US Dollar as traders reacted to the surprise decision. Bond yields jumped and commentators suddenly rediscovered their favourite pastime — predicting economic doom.
Apparently, the unwritten rule is that whenever oil sneezes in the Middle East, South Africa should immediately catch monetary pneumonia.
The Inflation Whack-a-Mole Championship
Central banking has increasingly begun to resemble an arcade game called Whack-a-Mole.
Oil prices rise because of conflict halfway around the globe? Whack interest rates.
Shipping costs increase? Whack interest rates.
The US Federal Reserve clears its throat? Whack interest rates.
A container ship is delayed in the Suez Canal? Better raise the repo rate—just in case.
One almost expects the next MPC statement to include warnings about volcanic eruptions in Iceland and unusually windy weather in Argentina.
The uncomfortable reality is that South Africa cannot raise interest rates high enough to influence global oil prices, wars, shipping routes or the value of the US Dollar.
What it can influence is the monthly bond repayment of a family in Bellville, the overdraft of a manufacturer in Gqeberha, or the expansion plans of a small business in Bloemfontein.
Those are very different targets.
Businesses Don’t Borrow from Geopolitics
South African businesses have spent years fighting on multiple fronts:
First came lockdowns.
Then came load shedding.
Then logistics bottlenecks.
Then collapsing municipal infrastructure.
Then rising insurance costs.
Then escalating fuel prices.
Now that confidence is slowly beginning to return, one has to ask whether squeezing borrowers every time international markets become nervous is really the best medicine.
Higher interest rates may cool inflation, but they are also remarkably efficient at cooling investment, employment, expansion and consumer spending.
A business that postpones opening a second branch because financing suddenly becomes more expensive creates exactly zero jobs.
That decision doesn’t appear in the inflation statistics.
It does appear in the unemployment statistics.
Not Every Fire Needs Another Fire Hose
Governor Lesetja Kganyago acknowledged that inflation has risen, largely due to temporary supply shocks. That is normal for him. But he was also emphasising that economic growth remains weak and that current monetary policy is already sufficiently restrictive to guide inflation back toward target over time. That’s a first!
That is hardly reckless, like some comments try to suggest. It is called recognising the difference between temporary turbulence and permanent overheating, as demanded in the past at many occasions by yours truly.
Sometimes central banking requires resisting the temptation to “do something” merely because markets expect theatre.
Markets enjoy surprises about as much as toddlers enjoy vegetables, but that does not mean toddlers should design nutrition policy.
The Forgotten Half of the Equation
Inflation DOES matter!.
Nobody enjoys paying more for groceries or fuel.
But economic growth matters just as much.
Businesses that survive become businesses that employ.
Businesses that expand become taxpayers.
Taxpayers fund infrastructure.
Infrastructure attracts investment.
Investment strengthens the currency over time far more sustainably than another quarter-percent increase in borrowing costs.
An economy cannot cut its way to prosperity forever.
Eventually somebody has to build something.
A Currency Is Not an Economy
Financial markets often treat exchange rates like scores on a score board.
Businesses know better.
The real scoreboard measures factories opening.
Restaurants hiring.
Property developments breaking ground.
Exporters investing.
Entrepreneurs taking calculated risks.
Those things require confidence — not merely low inflation.
If every external shock automatically triggers tighter monetary policy, we risk protecting tomorrow’s inflation statistics while quietly sacrificing tomorrow’s growth statistics.
Famous Last Words
The South African Rand may have suffered an embarrassing day in the currency markets.
That makes headlines.
But what SHOULD really make headlines instead are the thousands of businesses and households that quietly benefit from not facing yet another increase in borrowing costs.
Perhaps Kganyago and SARB finally (sic!) recognised that South Africa cannot solve every geopolitical crisis with a higher repo rate.
Sometimes the bravest decision in central banking is resisting the urge to panic.
After all, if raising interest rates could end wars, stabilise oil prices and calm global markets, the world’s central bankers would already have collected the Nobel Peace Prize.