On 23 July, the South African Reserve Bank's Monetary Policy Committee voted 4-2 to hold the repo rate at 7%.
Two members wanted to go further and hike.
The trigger was headline inflation at 5% in June, well above the bank's 3% target, driven largely by Brent crude's surge from around $70 to close to $99 a barrel amid the conflict in the Middle East.
Announcing the decision, Governor Lesetja Kganyago was candid about a second, more homegrown culprit: "municipal dysfunction," he said, "has become a binding constraint on growth."
In the same remarks, he noted that investment "has stalled" and that firms are not "pouring their energies into growing their South African business."
Sit with those two sentences together and notice what they show.
Kganyago is not claiming the repo rate can fix municipal dysfunction or revive investment.
He correctly names two problems his instrument cannot touch, then reaches for that instrument anyway, because it is the only one left standing.
Fiscal policy has been fenced off by the same debt-driven austerity that is squeezing the industrial strategy's own funding. With debt-service costs eating a rising share of the budget, Treasury treats a growth-oriented deficit as a credibility risk before it treats it as a tool.
That leaves monetary policy to carry a load officials themselves concede it cannot carry alone:
"monetary policy cannot do the heavy lifting" is by now a stock line in Pretoria, while vaguely specified "structural reforms" are invoked as the second engine that will supposedly make up the difference. Reforms may be worth doing if directed appropriately.
They are not a financing mechanism, and treating them as a substitute for one is the same evasion in different clothes.
There is a basic principle in economic policymaking, formalised by the economist Jan Tinbergen: a policymaker needs at least as many independent instruments as it has objectives. South Africa is, in effect, trying to manage an oil shock, a service-delivery collapse and a starved manufacturing sector with one active lever and a slower one that was never built to finance anything.
Kganyago's own candour about what the repo rate cannot do is the clearest evidence yet that it is carrying a load nothing else was built to share.
This is worth being precise about, because "inflation targeting" gets treated as a single, uncontroversial idea, when it rests on an assumption that only sometimes holds.
Raise the price of borrowing, and an overheating, demand-driven economy's price pressures ease.
That logic bites far less against cost-push inflation: when an imported input's price rises for reasons unrelated to South African demand, or when water and electricity costs rise because municipal infrastructure has failed. Squeezing domestic demand does not repair a water main or lower the landed cost of Brent crude. It does one thing reliably: raise the cost of everything financed by debt, including the plant and equipment a would-be manufacturer needs to expand.
South Africa's growth data make the timing particularly awkward. Stats SA put first-quarter growth at a modest 0.5% quarter-on-quarter, a sixth straight quarter of expansion.
The Reserve Bank, measuring the same quarter against a year earlier, put it closer to 2%. Manufacturing, on either measure, contracted for a second consecutive quarter, and the Bank itself now expects growth to slow further before any recovery.
When one strips out the target the Bank itself uses to justify that rate, the picture sharpens further.
A 7% policy rate held against a 3% inflation target, over the horizon at which monetary policy actually operates, is not a modest setting. It is a structurally high real-interest-rate stance. Manufacturers do not finance factories at the repo rate.
They finance them at the 10.5% prime rate it sets in motion, the rate at which a new production line or assembly-plant expansion must clear a return, for years, before it earns anything back.
A central bank that defaults to high real rates as its standing posture, rather than reserving them for demand-driven inflation it cannot otherwise explain, is not simply protecting the currency. It is quietly and continuously taxing the one sector capable of ending the country's dependence on commodity exports.
None of this is an argument for recklessness, or for ignoring inflation. A currency that loses credibility carries its own, worse costs. It is an argument for widening the toolkit: targeted investment in water and electricity infrastructure, buffer-stock arrangements that cushion imported price shocks, and, where wage-distributional conflict is a genuine driver, the coordinated wage-price engagement several European economies used to reconcile price stability with high investment during their own postwar industrialisation.
There is also a deeper question the funding-framework debate in Parliament keeps circling without naming. Where is money actually supposed to come from?
The instinctive answer is that it must be mobilised, in the budget, in taxes, in persuading pension funds to hold more developmental assets, before anything can be spent. This is domestic resource mobilisation: the assumption that money is a fixed stock lying somewhere, waiting to be located. It is not how modern banking systems work, and heterodox economists are not the only ones who say so.
The Bank of England and Germany's Bundesbank have each confirmed, in their own published research, that commercial banks create new deposits the moment they extend credit, rather than recycling pre-existing savings.
Pretoria's policy conversation proceeds as though neither had said so.
The alternative is domestic resource creation: a sovereign banking system originating the credit a productive economy needs, provided that credit is governed toward productive capacity rather than left, as South African bank lending overwhelmingly is today, to chase consumer debt and property speculation.
That does not mean credit can be created without limit. It means the real constraint on financing industrial recovery is not a shortage of rand in the system; it is whether credit is directed, at a cost long-gestation investment can bear, toward production, while the bottlenecks generating cost-push inflation: energy, water, rail, are relieved fast enough to let it work without feeding through into prices.
A single interest rate, set eight times a year in Pretoria on a theory of money that its own peer central banks no longer defend, was never going to fix an oil shock or a broken pump station and, to his credit, Kganyago has not pretended otherwise. What it can do, left to carry a load no single instrument should bear, is quietly strangle the industrial recovery the country says is its priority.
South Africa does not have an inflation problem that monetary policy alone can solve; it has a macroeconomic system that dresses up one instrument, run on a discredited theory of money, as an entire policy framework and calls the gap "structural reform." The industrial strategy will keep failing for exactly that reason until the country builds the other instruments Tinbergen's rule says it always needed.
Redge Nkosi is the Executive Director of the African Heterodox Economics Network (AHEN), a leading continental and diaspora research network focused on heterodox approaches to African economic development.
**The views expressed do not necessarily reflect the views of the National Media Group.