Lesetja Kganyago: Managing supply shocks - the role of monetary policy
Address by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at the Bureau for Economic Research Annual Conference, Pretoria, 2 June 2026.
It is fashionable nowadays to say we face unprecedented uncertainty. I have good news and bad news: uncertainty has declined lately – but only because things are more certainly worse.
Back in March we had a meeting of the Monetary Policy Committee (MPC) and it was a straightforward decision to leave rates unchanged because there was so much uncertainty. We saw price spikes for commodities like oil and fertiliser, but there were hopes the conflict might be short lived. Markets were moving on each new social media post. It seemed possible there could be a deal, the Strait of Hormuz would be reopened and prices would come back down again.
Those hopes have now faded.
Not only has the strait stayed closed, with only a few ships getting through, there has also been enough infrastructure damage and depletion of stocks that we must now accept that prices for Gulf products like oil will not be back at February levels any time soon.
Worse, the outlook for food prices has also started to deteriorate because of fertiliser shortages and because there is so much diesel in supply chains. I have heard South African farmers say that, at these prices, it is not worth planting next season. And that is before we start to discuss another food price risk: El Niño, which could bring drought next year to various parts of the country,
In this context, at our MPC meeting last week, we decided to raise rates from 6.75% to 7%.
In my years as a central banker, I have learned again and again the difficulty of communicating about supply shocks.
Critics never tire of objecting that monetary policy can do nothing about droughts or higher oil prices, so it is a mistake to respond. Meanwhile, introductory economics classes often teach monetary policy as an exercise in demand management, with the central bank raising rates when growth is strong and cutting when it is weak.
Neither of these simple claims reflects the actual workings of monetary policy, especially in small, open economies like South Africa.