How Joburg’s budget destroys the SARB’s balancing act 

Last week, the South African Reserve Bank (SARB) raised the repurchase rate by 25 basis points to 7%. Governor Lesetja Kganyago’s statement was measured and credible; the SARB’s monetary policy committee (MPC) cited the Strait of Hormuz closure, oil near $100 a barrel, services inflation running at 4.6%, and the risk that large overlapping shocks would entrench second-round price effects.

While the decision was defensible on its own merits, what it cannot do is the part nobody is saying clearly enough: manage the impact of constantly rising administered prices.

A rate hike will not lower your water tariff increases; it won’t recover Joburg’s 44.7% non-revenue water losses; and it will certainly not reverse the R97.1bn municipal budget the City of Joburg adopted on May 28 – the largest in the city’s history, tabled one day before the SARB meeting that was supposed to bring inflation under control.

The two events arrived in the same 48-hour window; they were not connected in any analysis I read.

The inflation nobody models

Because it focuses on fuel, the rand and global commodity prices – the fast-moving, legible variables that generate headlines – commentary on monetary policy has a consistent blind spot. What it consistently underweights is administered price inflation: the tariffs, rates and charges set by government entities that rise above CPI regardless of what the SARB does, regardless of what happens to the oil price, and regardless of whether the economy is growing or contracting.

Joburg’s new tariff schedule illustrates the problem. Water prices are being hiked by 12.5%, sanitation 11%, electricity 8.63%, refuse removal 6.2% and property rates 3.6%. For a middle-income household already absorbing fuel-price pressure from the Hormuz disruption and residual food inflation, the combined municipal cost increase will outpace headline CPI. This is not a marginal effect; it is a direct, compulsory addition to the cost of living, administered by a city that by its own admission cannot collect its revenue, cannot contain its losses, and cannot fund its infrastructure repair.

As much as it might want to, and as much as some politicians and commentators talk about changing its mandate, the SARB’s available tools cannot touch any of it.

This matters analytically, because administered prices are not a peripheral component of South African inflation – they are structural. Eskom tariff determinations, municipal bulk charges, toll fees and water-board pricing all move through slow bureaucratic channels rather than spiking overnight like Brent crude – which is exactly why they escape the attention that their cumulative impact warrants. When the MPC raises rates to manage inflation expectations, it is applying a blunt demand-side instrument to a cost structure that is supply-side, government-determined and immune to interest rate pressure.

What Joburg’s budget actually says

The fiscal honesty buried in Joburg’s budget speech deserves more attention than it has received. The city acknowledges that reducing City Power’s distribution losses from 27% to 15% would alone generate R3.5bn in additional revenue, without any tariff increase. It acknowledges a cash-cost coverage ratio of 9.8 days against a benchmark of 30-90. It revised its revenue collection rate down from 88.6% to 86%, citing historical underperformance that predates and will outlast the current administration.

In other words: residents are being charged more to compensate for the city’s failure to manage what it already collects. The tariff increases are not funding new infrastructure or service improvement. Indeed, they are merely plugging a fiscal gap created by institutional dysfunction.

That is the environment in which the SARB is trying to anchor inflation expectations.

The co-ordination problem

The Reserve Bank cannot be faulted for doing its job – its mandate is price stability. When inflation risks intensify, it tightens. Its worst-case scenario modelling, which includes a prolonged Hormuz closure combined with El Niño drought and non-linear passthrough effects, puts inflation above 6% and requires three additional hikes.

The problem is that monetary policy is carrying the inflation-fighting burden largely alone. Kganyago has said as much, repeatedly and in careful language. Structural reforms, including in energy, logistics, water and local government, are not optional complements to monetary policy. They are the only mechanism that can durably reduce the cost-push pressures that rate hikes cannot reach.

What structural reform looks like in this context is not abstract. It looks like City Power cutting distribution losses in half; it looks like municipalities collecting what they bill; it looks like the metro trading services reform programme delivering the R27.7bn in National Treasury performance grants it promises – contingent on the demonstrated institutional improvement that Joburg’s budget speech concedes has historically failed to materialise.

The SARB is tightening financial conditions for every borrower in South Africa to manage inflation that is, in significant part, generated by government entities that face no equivalent discipline.

What investors should watch

There is another, practical risk that none of the post-MPC commentary addressed: rising municipal tariffs that are imposed on households already under financial stress accelerate non-payment. Joburg’s own budget recognises this implicitly in its downward revenue collection revision. If tariff-induced affordability pressure drives collection rates further below 86%, the fiscal gap widens, which creates pressure for further tariff increases in the next budget cycle, entrenching an adverse feedback loop.

For businesses operating in Joburg, the infrastructure backlog – more than R220bn across water, electricity and roads – is the more durable risk. Tariff increases that do not fund backlog reduction do not improve service reliability; they raise input costs without improving the operating environment.

The SARB did what it could. The question now is whether the rest of government will do what it must.

Chris Hattingh is executive director of the Centre for Risk Analysis.

ALSO READ:

• Kganyago hikes rates — but bets are off from here
• Fuel relief puts Godongwana (and Kganyago) in a bind
• Why Godongwana had to rebuke Morero on Joburg’s debt crisis

_{Top image: Rawpixel; Currency.}