Luthando Mbana
Ingaba uvile nah?
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) has decided to keep the policy rate, known as the repo rate at 7% and consequently the prime lending rate at stays at 10,5%. Confusing right? I know.
The MPC is a group responsible for the monetary policy decisions like the policy rate. It consists of seven (7) members and is chaired by the reserve bank governor. Now that we have a clue of what we are dealing with here, let’s go the decisions. What does it mean to keep the policy rate unchanged – for now?
What does this mean?
So let us start here, what is the repo rate and what is the prime lending rate? The repo rate is the interest at which the SARB lends money to commercial banks and the prime lending rate is the interest rate that commercial banks charge the public. Note that commercial banks are your Standard bank, FNB, Absa, Nedbank, and Capitec bank. So, the interest rate that you get charged at these banks when making a loan and similar transactions, are mainly determined by these two rates I’ve just explained.
According to the Institute for Economic Justice (IEJ), this means that additional economic pain has been avoided for now. Please note that “for now”, because it is very important at this juncture. Let’s jog down memory lane a bit, the last MPC decision that was on the 28th of May 2026, the governor of the SARB announced that the MPC decided to increase the repo rate by 25 basis points, leading to a rise from 6.75% to 7%, and a rise of the prime lending rate from 10.25% to 10.5%. Note that when the repo rate increases, the prime lending rate increases automatically by the same margin.
The effects of the then increase that I can just point out on the surface without going in depth are the following:
- The increase resulted in commercial banks paying more to borrow from the SARB.
- Therefore, if the banks pay more to borrow, it means that they will also make their customers pay more to borrow from them.
- So, what this means is that loans, debt and credit purchases become more expensive for the public.
The “Now” of the IEJ
The IEJ for me, is merely telling us that the decision of the MPC to keep the rate at 7% is temporary and conditional, and not a resolved outcome. The reason for this is that in May the governor said the decision of the MPC to increase the repo rate was to manage risks and ensure that inflation returns to target. We will get to the inflation topic in the next issue, (but for the sake of understanding, inflation is the rise in prices of goods and services over time. This simply means that it’s when prices go up and the value of money goes down).
So, what does the current repo rate mean for South Africans?
- Borrowing is still costly: meaning that the public continue to feel the effects of the rise.
- Consumer spending decreases: with higher bonds and debt repayments, households have less money to spend.
- Slow economic growth: due to the less spending by consumers coupled with less business investment.
- Unemployment rises: when growth is slow, businesses tend not to hire and may even resort to retrenchments.
The now tells us that we must just expect job creation to stay weak in 2026, leading to continued rise in unemployment. The hope is that once inflation is under control, the SARB can therefore cut rates again and make growth to pick up again.
For now, Byeee!!
–MediaHouse150
An interesting perspective. One point I’d add is that it’s important to distinguish between what monetary policy can realistically achieve and what falls within fiscal policy.
The SARB’s primary mandate is to protect the value of the currency in the interest of balanced and sustainable economic growth. This basically means maintaining price stability by keeping inflation low and stable, rather than directly targeting unemployment or economic growth. Those broader challenges are primarily influenced by fiscal policy, government spending, taxation, infrastructure investment, labour market reforms and other structural interventions.
While higher interest rates are often unpopular because they increase borrowing costs, a contractionary monetary policy becomes necessary when inflationary pressures build. If inflation is allowed to accelerate unchecked, the purchasing power of households erodes much faster, particularly for lower income households. The consequences of failing to keep inflation under control can be severe.
Zimbabwe’s experience with hyperinflation is a clear reminder of what can happen when inflation becomes entrenched and confidence in the currency is lost.
Although SA’s circumstances are very different, it illustrates why the SARB places a strong emphasis on preserving price stability.
Another important thing to note is that the MPC’s decisions are data dependent and forward looking. Implementing policy based on fear, prejudice or short term political pressure, rather than inflation dynamics and the economic outlook, would undermine the credibility of monetary policy and ultimately make inflation more difficult and costly to bring back to target.
It is therefore fair to debate the costs associated with higher interest rates, but it is equally important to assess the SARB against its constitutional mandate.
Criticisms relating to unemployment, weak economic growth and broader structural challenges should be considered in the context of the fiscal policy, that is, turning to the government and that in itself would be an entirely different conversation given the current circumstances which include corruption, misuse of public funds etc.