In an address to the Mapungubwe Institute for Strategic Reflection Forum on Africa and Geopolitics, South African Reserve Bank Governor Lesetja Kganyago said monetary policy must remain tight enough to prevent the current energy shock from causing persistently higher inflation. The bank expects inflation to slow significantly in 2027 and return to the 3% target around the end of that year, following policy rate increases aimed at securing that outcome. Kganyago warned that overlapping climate, geopolitical, trade, artificial intelligence and debt risks could create a cascade of supply shocks, producing bursts of inflation and threats to financial stability. High sovereign debt and borrowing costs also increase the risk of fiscal dominance, but he argued that central bank independence can prevent monetary policy from being used to finance governments. South African government interest costs now consume about 5.3% of gross domestic product. South Africa’s improving fiscal and inflation outlook has helped contain longer-term bond yields at about 9% and supported unusually low rand volatility despite the 2026 global bond repricing. However, weak growth remains the central domestic constraint. The economy contracted in the second quarter, annual growth has averaged about 0.6% over the past decade and estimated potential growth remains low despite some improvement.

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