Two of the six members of the Reserve Bank’s monetary policy committee wanted a hike in July. On Wednesday, all six voted for one, with governor Lesetja Kganyago warning that a prolonged shock risks spreading into wider prices..
The unanimous 25-basis-point increase takes the repo rate to 7.25% from September 25, and lifts the prime lending rate to 10.75%. It is the second hike this year, after May’s increase to 7%.
Economists expected a closer call: 19 of the 22 surveyed by Bloomberg forecast a hike, and the median forecast was a 4–2 split.
“The fact that it was unanimous was more hawkish than I expected,” PSG Financial Services chief economist Johann Els says. “It seems the Reserve Bank is concerned about the sustained and large global supply shock, and particularly that this will feed through into inflation expectations going forward, limiting the potential for inflation to ease back towards the 3% target.”
Kganyago said the committee also discussed a 50-basis-point increase and leaving rates on hold. Ninety One fixed income portfolio manager James Turp says a 50-basis-point increase would have been a poor response to an external oil shock.
“That’s a big jump,” he tells the FM. “It’s not the best solution.”
The decision came hours after Stats SA reported annual consumer inflation of 4.4% for August, up from 4.3% in July. The Bank’s own forecasts are less benign. It now sees inflation averaging 4.4% this year, up from 4%, and 4% in 2027, up from 3.8%. It raised its oil price assumption to $90 a barrel for 2026, from $82, and to $80 next year, from $75. Brent has risen about 37% this year.
The Bank expects inflation above 5% later this year and early next year. The peak is 5.7% in November, before it eases towards 3% by late 2027.
The Bureau for Economic Research’s survey of inflation expectations has eased slightly, but it predates the latest fuel increases. Long-run expectations still sit near 4%, a percentage point above the target, and market-based measures have picked up.
Oil shock left rate setters no choice
Els says there were enough arguments to keep rates unchanged, but that the concern that the shock “has been sustained for so long, and could therefore push up inflation expectations, was the overriding factor”.
The Bank’s quarterly projection model, which acts only as a guide, points to broadly stable rates for the rest of 2026, followed by cuts as inflation falls to 3%, showing up to four cuts, totalling a percentage point, by the end of 2028.
Its alternative scenarios show the risks. If major central banks raise rates by a combined percentage point, the model implies roughly one more hike than the baseline. If inflation expectations and wage growth rise, it implies one to two above the baseline peak, held for longer.
Sanlam Investments economist Patrick Buthelezi does not expect relief soon. “Overall, based on our inflation forecast, policy is likely to remain higher for longer,” he said via email.
The economy contracted 0.2% in the second quarter, after growing 0.4% in the first. The Bank now forecasts growth of 1.2% this year, down from a 1.4% estimate in July, and around 2% over the medium term.
“The SARB is navigating an increasingly difficult balance between subdued domestic growth and renewed external inflationary pressures,” said ooba Group CEO Rhys Dyer. “While 1.2% remains modest, it would still represent a 0.1 percentage point improvement on last year and more than double the growth recorded in 2024,”