Why the Reserve Bank’s MPC needs to be reworked

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JIMMY MOYAHA: We have been going through quite an interesting rate cycle with the South African Reserve Bank and we are expecting to see rate cuts going into the rest of this year.

But amid all of this there is quite an interesting paper drafted by a number of independent economists that suggests that perhaps the SA Reserve Bank’s restrictive monetary policy is something that could be contributing to our low growth and the erosion of real value in terms of households.

Read: Sarb errs on the side of caution, holds rates steady

For more on this I’m joined on the line by one of the independent economists who was part of co-authoring this paper, Dr Roelof Botha, to take a look at his thoughts and get a sense of where we go from here.

Dr Botha, lovely having you on the show, as always. Thanks so much for taking the time. Certainly an interesting viewpoint on the Monetary Policy Committee, the MPC. Can you give us a sense perhaps of what brought the paper about, but more importantly why you hold this view?

ROELOF BOTHA: Well, if you deal with macroeconomics, as I have for the past five decades, then you pick up trends, I believe, a little quicker.

What I and some of my colleagues noticed is that there has been a huge increase, a huge change, in the size of shift in the conduct of monetary policy since the departure of the previous [Reserve Bank] governor Gill Marcus ever since her retirement [in November 2014].

The balanced approach [until then] towards the level of short-term interest rates, which to my mind, and I think most economists would agree with me, is the most important single economic indicator in this country because it affects, directly and indirectly, the spending power of businesses and individuals.

And there has been a decisive shift.

Just to give you an idea, the average real prime minus CPI was 3.1% in 2014, when Gill Marcus was around …

It went to an average of 5.1% in 2017 after the new MPC was appointed by Mr Jacob Zuma, the state capturer par excellence.

Then it went to 6% in 2019 and an 8.3% real prime rate in March 2025.

That was, I think, the third highest in the world.

It was the highest level in 15 years, despite an absence of any sign of demand inflation.

This bothered us.

Why had there been such a decisive shift in monetary policy when what went hand-in-hand with this decisive shift, of course, was a huge increase in unemployment.

This country’s problem is not high inflation; it has not been a problem. Our inflation has not been a problem for the last two decades. Our problem is high unemployment. You do not create jobs if you have the highest interest rate in the world.

Read: Lower CPI goal may save South Africa R900bn in debt costs

JIMMY MOYAHA: Dr Botha, how then do we approach this situation? There’s a recommendation and a suggestion that the Monetary Policy Committee in its structure at the moment be looked at and reviewed. What would that serve to achieve?

ROELOF BOTHA: Well, I’ll answer that in a second but I just want to make one point clear.

The increase we had of 475 basis points in the prime rate via the repo shortly after Covid-19 and until they took this to a record in 2025, 2024.

If you apply that 475 basis points to total mortgage advances of South African banks of just below R2 trillion – means that their additional debt cost burden was R91 billion.

That money could have been spent in the economy, and I can almost guarantee you that our unemployment rate would have been lower.

But what we realised is that these five or six [MPC members] – it’s fascinating that I tried to get the exact number from the Reserve Bank’s publications, and they’re not sure themselves – they say there’s five members, but it could be seven now [chuckling].

I’m not sure to what extent they can co-opt people, but these are political appointments.

The question arises – do these five people really have what it takes? Do they understand business? Do they understand the demographics of South Africa?

Do they have what it takes to take a decision on the most important indicator in the economy which affects 62 million people?

Our answer to that question is no, they don’t.

It would be to our advantage if one were to have a more democratic approach towards monetary policy in this country by having inputs.

Our suggestion [is] that you have obviously two people from the Reserve Bank – unfortunately, I have to add, but that would be necessary. Then two people from National Treasury, probably the director-general and the chief economist.

And then you go to the relevant parliamentary standing committees, two nominees from there. And two nominees from the financial services sector, which could be the Banking Association of South Africa.

Some of the large banks could perhaps take turns in nominating people. And then two people from employers’ organisations like Business Unity South Africa or Consulting Engineers South Africa, and then two people from the trade union environment, from the key trade unions in South Africa.

You have 12 members now of the Monetary Policy Committee. Each has the same weighting for a vote after their meetings. The meetings do not have to be every second month. The meetings should only occur when it’s necessary.

When you see that we are not creating jobs at a fast enough pace, then [this new MPC] should meet and have a look at the reasons.

If one of the reasons is that the cost of credit and the cost of capital are too high, then lower the interest rate.

It’s as easy as that.

JIMMY MOYAHA: Dr Botha, alongside the conversations around potentially relooking at the composition of the Monetary Policy Committee, do you believe we should be relooking at their mandate as a central bank as well, in terms of how it is that they would then be contributing towards the economy?

That is understanding, of course, that some of those challenges that you outlined are challenges we’ve had to contend with for quite some time as a country?

ROELOF BOTHA: Yes. The mission of the Reserve Bank should remain intact. The dilemma that many economists in this country have been facing is that they are interpreting their mandate and their mission statement only halfway.

It says they only stick to trying to maintain price stability. But it goes further than that.

My friend from Investec, a well-known economist, has said on many occasions that it seems as if they run [inaudible], as if they are forgetting about the second part.

The second part is they must also conduct monetary policy in such a way that they further this country’s growth and employment-creation prospects. It is as if they have just erased that part – and that is really very frustrating.

It’s trite for them to argue ‘Yes, but there are structural problems in the economy, we haven’t built enough; we’re not repairing fast enough’.

The point is just that. If they lower rates, we will have more capital formation. We will have more private-sector consumption expenditure, business formation. We will have a broader tax base because for every job that you create, you broaden the tax base.

And then with a new approach towards public-private partnerships, maybe we can really get cracking on the structural side of things.

But it doesn’t help you if you’ve got these structural problems and you also have one of the highest costs of capital in the world.

JIMMY MOYAHA: A proposal for an expanded monetary policy committee could potentially be the difference maker in reigniting South Africa’s economy if we are to look at it from that perspective.

That is certainly the view of a paper that has been authored by some leading independent economists in South Africa, one of whom just joined us on the line to discuss this.

Dr Botha, thank you so much for your time and for the insights. Dr Roelof Botha joined us to take a look at whether or not we should be rethinking our Monetary Policy Committee.

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