South Africa Lifts Key Policy Rate as Predicted

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 2.6% (vs 2.9%) and for 2027 to 2.8% (vs 3.2%). 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.

The South African Reserve Bank kept its key repo rate unchanged at 6.75% on January 29, 2026, as widely expected, after a 25 bps rate cut in November. The decision was not unanimous, with two members favoring a 25-basis-point cut. Policymakers noted that, although the inflation outlook is improving, they aim for a further drop in inflation expectations and remain watchful of potential price pressures from electricity tariffs. Uncertainty in global politics also weighed. The SARB revised its inflation forecasts, lowering the 2026 estimate to 3.3% from 3.5%, while slightly raising the 2027 forecast to 3.2% from 3.1%. Governor Lesetja Kganyago said that inflation is expected to reach the new 3% target by 2028. The bank sees growth at an unchanged 1.4% this year and 1.9% next year. The SARB'S quarterly projection model continued to show gradual cuts, with the benchmark rate declining to 6.31% by end-2026 and 6.05% by the end of the next year.