- Decision
- Maintain
- Rate change
- 0 bps
- repurchase rate
- 7%
The South African Reserve Bank’s Monetary Policy Committee held the policy rate at 7% in July 2026, judging that inflation remains too high and growth is weak, with upside risks to inflation and downside risks to activity. After holding at 6.75% in March, the MPC raised the rate by 25 basis points in May and then kept it unchanged in July. The committee split four-to-two for a hold over a hike, saying the previous increase left policy appropriate for now and somewhat restrictive. Inflation was 5.0% against the central bank’s 3% target with a tolerance band of plus or minus 1 percentage point, and the MPC expects headline inflation to stay above 4% until early next year, largely because of fuel costs, while services and underlying inflation measures point to firmer pressures and survey inflation expectations have risen. First-quarter growth ran close to 2% year on year, driven by net exports rather than domestic demand, and the central bank anticipates slower growth in the second and third quarters as consumer and business confidence weaken, before a second-half recovery in its baseline. The rand has been resilient, staying near its start-of-year level against the USD and stronger against the euro, helping contain import prices. Globally, the Middle East war has disrupted supply chains and pushed oil back to roughly USD90 a barrel, while world growth and inflation forecasts are largely unchanged. The Quarterly Projection Model shows rates broadly stable for the rest of the year, with cuts later in the forecast as inflation returns to 3%, but the MPC said decisions will remain meeting by meeting and it will act as needed to keep expectations anchored.
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.