South African Reserve Bank Hikes Rates 25bps to Fight Inflation
The South African Reserve Bank (SARB) raised interest rates by 25 basis points, citing escalating global inflation risks linked to the ongoing Middle East crisis and mounting pressure on domestic fuel and food prices.
The Apex Bank increased borrowing costs for the first time since 2023 and suggested that more policy tightening may be needed if the war in Iran drags on, with an expected impact on inflation, which printed at 4% in April.
Announcing the Monetary Policy Committee’s (MPC) latest decision on Thursday, Lesetja Kganyago, the country’s central bank governor, said the repo rate would increase to 7%, pushing the prime lending rate to 10.5%.
Kganyago said the monetary authority’s decision was driven by rising inflationary risks following continued disruptions in global oil markets caused by the prolonged closure of the Strait of Hormuz.
“Since our last meeting, hopes for a quick end to the Middle East crisis have faded. The Strait of Hormuz is still largely closed. Oil prices have fluctuated around 100 dollars per barrel,” Kganyago said.
“In this context, global growth forecasts have been marked down, while inflation forecasts have been revised higher.”
Kganyago said rising energy costs were already filtering through to consumers globally, with inflation in the United States reaching 3.8% in April and euro-area inflation standing at 3%.
Domestically, South Africa’s inflation rate rose to 4% in April from 3.1% previously, largely due to sharply higher fuel prices.
“After falling by 8.7% in March, fuel prices increased by 11.4%. This is one of the largest jumps in fuel inflation on record,” Kganyago said.
The Reserve Bank now expects headline inflation to average 4.4% this year and 3.7% next year before gradually returning to the bank’s 3% target in 2028.
Kganyago warned that inflation risks remained skewed to the upside as higher fuel and food costs begin feeding into wages and broader consumer prices.
“The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second-round effects, requiring a monetary policy response,” he said.
While economic growth forecasts for the next two years have been revised downward, Kganyago said the central bank remained committed to protecting price stability and anchoring inflation expectations.
“We have already had one global inflation surge this decade, and we may well be starting another,” he said. “In such adverse conditions, it is crucial that central banks maintain their credibility, and prevent higher inflation from becoming entrenched.”
Kganyago stressed that future policy decisions would continue to be made on a meeting-by-meeting basis depending on incoming economic data and global developments. GCR Affirms Stanbic IBTC Bank AAA/ A1+ Ratings, Outlook Stable
