The South African Reserve Bank (SARB) has left the repo rate unchanged at 7%, despite inflation climbing to its highest level in two years and calls from some policymakers for another interest rate increase.
The decision follows the Monetary Policy Committee’s (MPC) May rate hike and reflects the central bank’s focus on the future inflation outlook rather than reacting solely to current price pressures.
MPC vote favours holding rates
Four members of the Monetary Policy Committee voted to keep interest rates unchanged, while two supported a 25-basis-point increase.
The outcome marks a reversal from the May meeting, when the committee was split in favour of raising rates.
According to PSG Financial Services chief economist Johann Els, the Reserve Bank is focusing on where inflation is expected to head rather than where it currently stands. He said risks such as the Middle East conflict, rising oil prices and the possibility of an El Niño weather event are being treated as potential scenarios rather than being included in the bank’s central forecast.
Fuel prices drive inflation higher
Annual consumer inflation increased from 4.5% in May to 5% in June, moving above the Reserve Bank’s 3% inflation target and its one percentage point tolerance band.
Transport costs were the main contributor to the increase.
Fuel prices were 34.3% higher than a year ago, including:
- Diesel: up 50.8%
- Petrol: up 31.7%
Passenger transport costs also increased as taxi, bus and e-hailing fares rose.
The Reserve Bank expects headline inflation to remain above 4% until early next year.
While food inflation has eased and goods inflation remains relatively contained, the bank warned that services inflation and inflation expectations are becoming less favourable.
Governor Lesetja Kganyago said the inflation outlook had improved slightly since May, but added that “inflation is still too high, while growth is weak”.
Economic growth forecast improves
The Reserve Bank increased its 2026 economic growth forecast from 1.2% to 1.4% after stronger-than-expected first-quarter performance.
However, it expects growth to slow during the second and third quarters as higher fuel prices place pressure on households and uncertainty weighs on investment.
The bank also lowered its 2026 inflation forecast from 4.4% to 4%, largely because its assumed average oil price has declined since the May policy meeting.
Despite the improved forecast, the Reserve Bank said risks remain, particularly those linked to developments in the Middle East and global oil prices.
Future decisions remain data dependent
The Reserve Bank’s projections indicate that interest rates are likely to remain broadly stable for the rest of 2026, with possible reductions later in the forecast period as inflation moves back towards the 3% target.
The Monetary Policy Committee reiterated that future interest rate decisions will continue to be made on a meeting-by-meeting basis.
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