South Africa Keeps Key Interest Rate Unchanged at 7%

The South African Reserve Bank kept its key repo rate unchanged at 7% on July 23, surprising most analysts who had expected a 25-basis-point increase, as policymakers sought to support a fragile economic recovery despite persistent inflation risks. The Monetary Policy Committee voted 4–2 to hold rates, citing a slightly improved inflation outlook and weaker growth, while reaffirming its objective of steering inflation toward its 3% target over time. Governor Lesetja Kganyago warned that renewed conflict in the Middle East, which has driven up oil and fertilizer prices, could warrant further tightening if higher fuel costs spill over into food prices and core inflation. South Africa’s annual inflation accelerated to 5% in June, although the central bank now expects inflation to average 4% in 2026, down from its previous forecast of 4.4%. The SARB also raised its 2026 growth forecast to 1.4% from 1.2%, while cautioning that economic momentum could weaken in the coming quarters.

The South African Reserve Bank raised its key repo rate by 25 bps to 7% on May 28, 2026, as widely expected, marking its first rate hike since 2023. Four of the six members of the MPC backed the decision, while two voted to hold. The committee said inflation risks had increased due to the Middle East crisis and warned that overlapping shocks could trigger second-round effects, justifying a monetary policy response to contain risks and bring inflation back to target. South Africa’s inflation rate climbed to 4% in April from 3.1% in March, now sitting at the upper end of the central bank’s target range. Overall, Inflation forecasts were raised to 4.4% for 2026 (from 3.7%) and to 3.7% for 2027 (from 3.3%). Regarding economic activity, the central bank lowered its growth forecasts for 2026 to 1.2% (vs 1.4%) and for 2027 to 1.7% (vs 1.9%). The policy statement was again accompanied by three alternative scenarios, all pointing to some additional monetary policy tightening.

The South African Reserve Bank unsurprisingly held its key repo rate at 6.75% on March 26, 2026, marking a second consecutive pause, citing upside risks to the inflation outlook due to the ongoing Middle East conflict.. Policymakers noted that inflation was moving in a positive direction, matching the 3% target in February, but higher energy prices are expected to push inflation higher in the near term. Headline inflation is projected to rise to around 4% in the second quarter, led by fuel inflation exceeding 18%, before gradually easing back to 3% by late next year under the baseline forecast. Overall, Inflation forecasts were raised to 3.7% for 2026 (from 3.3%) and to 3.3% for 2027 (from 3.2%). The central bank also revised its policy outlook, now projecting only one rate cut instead of two previously, while assessing two possible Iran conflict scenarios, a short-term two-month scenario and a prolonged one-year scenario, both implying the need for higher interest rates.