The South African Reserve Bank (SARB) boosted interest rates by 25 basis points, citing rising global inflation risks due to the ongoing Middle East crisis and rising domestic gasoline and food prices.
The Apex Bank raised borrowing prices for the first time since 2023, implying that more policy tightening may be required if the war in Iran continues, with an expected impact on inflation, which stood at 4% in April.
Lesetja Kganyago, the country’s central bank governor, announced the latest Monetary Policy Committee (MPC) decision on Thursday, saying the repo rate would rise to 7%, bringing the prime lending rate to 10.5%.
Kganyago stated that the monetary authority’s decision was motivated by increased inflationary risks as a result of ongoing disruptions in global oil markets caused by the Strait of Hormuz shutdown.
“Since our last meeting, hopes of a quick resolution to the Middle East crisis have faded.” The Strait of Hormuz remains largely closed. “Oil prices have fluctuated around $100 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.
Kganyago warned that inflation risks remained skewed to the upside as rising gasoline and food costs began to affect 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 stated.
While economic growth predictions for the next two years have been lowered downward, Kganyago reiterated the central bank’s commitment to maintaining price stability and anchoring inflation expectations.
“We have already had one global inflation surge this decade, and we may well be starting another,” he stated. “In such adverse conditions, it is crucial that central banks maintain their credibility, and prevent higher inflation from becoming entrenched.”
Kganyago highlighted that future policy decisions would be decided meeting by meeting, based on incoming economic data and global trends. GCR affirms Stanbic IBTC Bank’s AAA/A1+ ratings, outlook stable.
