- Decision
- Raise
- Rate change
- 25 bps
- repurchase rate
- 7%
The South African Reserve Bank’s Monetary Policy Committee raised the policy (repo) rate by 25 bp to 7.00 % with effect from 29 May, as four of six members judged that intensifying upside risks from costlier oil, a record 11.4 % jump in April fuel prices and emerging second-round pressures warranted a pre-emptive move to secure the 3 % inflation target. Following a 25 bp cut to 6.75 % in November 2025 and two holds, the rate now returns to its mid-2025 level. No changes were announced to operational features of the policy corridor. Headline CPI quickened to 4.0 % in April from 3.1 %, and the SARB now projects 4.4 % average inflation in 2026 and 3.7 % in 2027, before converging to target in 2028; growth forecasts for the next two years have been marked down amid weaker investment and consumption, with recent floods adding to downside risks. The rand remains firmer than a year ago and elevated export prices are supporting favourable terms of trade, though food and fuel costs are expected to re-accelerate. Globally, the protracted closure of the Strait of Hormuz has kept oil near USD 100, pulled growth forecasts lower and lifted bond yields, leaving major central banks on hold. The SARB’s Quarterly Projection Model implies only this one additional hike before a gradual easing cycle as inflation recedes, but the MPC stressed decisions will stay data-dependent and that more tightening could follow under adverse oil, food or currency scenarios.
Rate evolution
Over the period, the South African Reserve Bank lowered the policy rate by 75 basis points from 7.50% to 6.75%, with two early cuts, a September pause, one further reduction in November and then holds in January and March as easing became more cautious, before raising it by 25 basis points to 7% in May 2026, holding in July and raising it by another 25 basis points to 7.25% in September. The initial easing reflected inflation below 3%, core inflation near the bottom of the target range, a stronger rand, lower oil prices, softer inflation expectations and weak domestic growth, even as the Monetary Policy Committee warned that trade tensions and currency weakness could produce a stagflationary shock, while increasingly framing decisions during 2025 around securing inflation at 3%, first by aiming for the bottom of the 3-6% range and then, from November, under a formal 3% target with a tolerance band of plus or minus 1 percentage point.
In January and March it kept the rate at 6.75% as inflation stayed near target and expectations continued to fall, but the Middle East shock shifted inflation risks to the upside, pushed back projected cuts and prompted the bank to stress second-round effects, downside risks to growth and meeting-by-meeting decisions. By May, with hopes for a quick end to the crisis fading and South Africa’s growth forecasts lowered, inflation had risen to 4% in April from 3.1% mostly because of higher energy costs, services inflation accelerated to 4.6%, and the forecast showed headline inflation averaging 4.4% in 2026 and 3.7% in 2027 before returning to the 3% target in 2028, leading the committee to raise the policy rate to 7% effective from 29 May 2026. In July it held the policy rate at 7%, judging that the previous increase had made the stance somewhat restrictive and appropriate for the time even as the Middle East crisis entered a more volatile phase, oil prices rebounded, inflation remained above target, underlying pressures strengthened and downside risks to growth persisted.
In September, the committee unanimously raised the policy rate by 25 basis points to 7.25%, effective from 25 September 2026, as escalating conflicts intensified a persistent global supply shock, fuel prices rose again, global rates moved higher, services inflation remained elevated and longer-run expectations stayed around 4%, with headline inflation likely to be above 5% later in 2026 and early in 2027 and inflation risks to the upside despite a 0.2% second-quarter contraction and downside growth risks.