Finance guru Yusuf Bodiat is the author of The Bottom Line: A CFO’s Blueprint for South Africa’s Turnaround.
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THE Reserve Bank kept interest rates unchanged this week, which wasn’t a surprise. Most economists expected it, the market had priced it in, and if you follow the logic of inflation targeting, the decision makes sense.
We’re dealing with a supply shock driven by higher oil prices, rising fuel costs, and global uncertainty, and the textbook response in those conditions is to avoid overreacting and to wait and see whether the shock feeds into broader inflation.
That’s exactly what they did.
South Africa has been using inflation targeting since 2000, and it has largely worked. It brought stability after a period of volatility, helped anchor expectations, and provided monetary policy with a clear, transparent framework. More recently, the target has been tightened to 3%, which suggests policymakers still believe in the framework and are trying to strengthen it rather than replace it. So the issue isn’t whether inflation targeting still works, because it does.
The more relevant question is what this decision actually means in real life, because “rates unchanged” sounds like good news on paper. Your bond repayment doesn’t go up this month. Your car instalment stays the same. There is no immediate additional pressure coming from interest costs.
But that’s only one part of the picture.
The real pressure is coming from somewhere else.
Fuel prices are about to increase sharply, and that flows through the entire economy. Transport costs rise, food prices follow, and the cost of getting goods to shelves increases.
You don’t see it all at once, but over the next few months, it shows up everywhere: in your grocery bill, in school transport, in delivery costs, and in small daily expenses that quietly compound.
For households already living hand-to-mouth, this is where it hits hardest. There is no cushion and no flexibility. A higher taxi fare or a more expensive food basket doesn’t mean cutting back on luxuries; it means cutting back on basics.
Meals get smaller, payments get delayed, and debt becomes the only way to bridge the gap. For many, this isn’t about tightening belts. It’s about not having enough to begin with, and every increase simply makes an already difficult situation worse.
For middle- and upper-income households, the pressure looks different but is still very real. Petrol costs increase, grocery bills climb, and while your bond stays the same for now, your total monthly spend starts creeping up.
Medical aid and school fees aren’t directly linked to interest rates, but they tend to keep rising in the background, especially when broader costs across the system are increasing. What used to feel manageable starts to feel tighter, even without a rate hike.
And this is where the decision becomes more nuanced.
Inflation targeting doesn’t just work through interest rates. It works through expectations. By the time you see clear evidence of inflation spreading in the data, households have already adjusted their spending, businesses have already increased prices, and wage pressures have already started to build.
In finance, we know that by the time something is obvious in the numbers, it has usually been there for a while.
What also makes this moment different is the nature of the shock itself. This isn’t a neat, short-term disruption that you can comfortably look through.
We’re dealing with ongoing geopolitical tension, sustained pressure on energy prices, and a weaker rand that amplifies all of it locally. These are the kinds of pressures that tend to linger and compound rather than disappear quickly.
Against that backdrop, holding rates is still a defensible decision, particularly given the pressure that higher borrowing costs would place on households and businesses.
But if there is a gap, it’s not so much in the decision as it is in how the situation is being framed.
Inflation targeting works as much through credibility and expectations as it does through interest rates, and in uncertain environments, the signal you send becomes just as important as the action you take.
A clearer indication of where policy is likely heading, or a more direct explanation of how these pressures will filter into everyday costs, might have helped households and businesses prepare more effectively.
Because the reality is this:
Your interest rate hasn’t gone up, but your cost of living is already moving, and will continue to move sharply.
And when those increases start feeding through the broader economy, interest rates will not stay where they are.
The Reserve Bank didn’t make the wrong decision this week. But for most South Africans, the real story was never about the interest rate.
It’s about everything else that is becoming more expensive at the same time, and once those pressures take hold across the economy, the next move on rates becomes a question of when, not if.