Borrowers Remain Under Pressure with SARB Expected to Hold or Hike the South Africa Repo Rate

Quick overview

The South African Reserve Bank is widely expected to leave interest rates unchanged next week, although rising fuel prices and renewed inflationary pressures have made the decision significantly more challenging.

SARB Decision Expected to Be a Close Call

Attention is turning to the South African Reserve Bank’s Monetary Policy Committee (MPC), which will announce its latest interest rate decision a day after Statistics South Africa releases June inflation data.

PSG Financial Services Chief Economist Johann Els expects the central bank to keep the repo rate unchanged, although he believes the outcome will likely be one of the closest policy decisions in recent months.

The debate follows renewed inflationary pressures linked to higher oil prices after escalating tensions in the Middle East.

Fuel Prices Drive Inflation Higher

Els expects South Africa’s headline inflation rate to rise from 4.5% in May to around 4.7% in June, reflecting a monthly increase of approximately 0.5%.

According to him, the increase is being driven largely by higher fuel prices rather than widespread price pressures across the economy.

While inflation remains above the SARB’s preferred target, Els believes there is still limited evidence that rising fuel costs are feeding into broader inflation through higher wages or sustained price increases in other sectors.

He expects inflation to ease again over the coming months, falling toward 4.3% in July before gradually moving closer to 4.0% by the end of the year.

Previous Rate Hike May Reduce Need for Further Action

The economist believes the SARB’s pre-emptive 25-basis-point rate increase in May has reduced the urgency for another hike this month.

However, stronger oil prices, widening fuel under-recoveries, and rising short-term inflation expectations have strengthened the case for additional policy tightening.

Some analysts, including Bank of America, now expect the central bank to raise the repo rate to 7.25%, lifting the prime lending rate to 10.75%.

Stable Rand Supports the Case for a Hold

Despite the recent rise in inflation, Els argues that several factors continue to support leaving interest rates unchanged.

Oil prices remain below the levels seen when previous inflation expectations were surveyed, while the rand has remained relatively stable, helping to limit imported inflation.

He also noted that wage growth has shown little sign of accelerating, suggesting higher fuel costs have not yet created meaningful second-round inflation effects.

Els expects the MPC vote to be closely divided, with some policymakers likely to support another rate increase while others believe the May hike remains sufficient.

Although the balance of risks has shifted following renewed geopolitical tensions, he still expects the SARB to keep rates unchanged next week. Investors will nevertheless closely monitor both the inflation data and the MPC’s guidance, as persistent energy price pressures could influence the path of monetary policy later this year.

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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