The Monetary Policy Committee (#MPC) of the South African Reserve Bank (#SARB) met in one of their pre-planned meetings last week to consider the internal and global economic environment. At these meetings the MPC also regularly decides on interest rates (specifically the repurchase or repo rate), which is the instrument used by the SARB to regulate inflation in the republic.

As predicted, the MPC decided to raise rates by 50 basis points. As decisions go, this was a forgone conclusion. Indeed, the MPC takes its decisions in a mechanical way, like toggling a switch. Decisions are hardly nuanced or creative, nor do they hardly surprise. In fact, an algorithm could replace the MPC and these highly paid and highly qualified individuals could be better utilised elsewhere, with huge costs savings.

The MPC believes it is important to be seen to be consistent and rational in decision-making. This is so in order not to spook the markets. This, of course, presupposes that the markets are rational and always factor in the fundamentals and the consistency of decision-making in their reaction. We know, however, that in fact markets have a ‘mind’ of their own, otherwise why would they get spooked by a 0.1 percent fall in Chinese growth, which is still a not shabby 6.9 percent. Why else would the currencies of all emerging economies fall when there are problems in just one country. Why would the Yuan be under pressure? This happens because emerging markets are manipulated by speculators (hedge fund managers) who frequently rely on algorithms to ‘take’ decisions.

Therefore, in effect, the MPC meets to take decisions with an eye towards the reaction of these algorithms. And in the process the South African economy is beholden to these self-same algorithms. Where one looks for bold action like the recent Bank of Japan decision to reduce rates below zero, or the confident and nuanced decisions of the US Fed, we get the uninspired toggling of a switch. No creativity here. No regard to the effect a rate increase will have on an already fragile economy.

Even the Bank of England is seriously considering negative interest rates in order to boost the economy. The ANC and the government have to decide on what is important. If creating jobs is a priority, then policies and actions should be implemented towards this goal. The SARB stance of tightening monetary policy is not going to aid that goal.

Those people who believe, under these circumstances, that we will get any meaningful growth and a dent on unemployment are deluding themselves. Unless, fortuitously, the external environment changes in our favour…