Finance

Double blow on the cards for South Africa

Staff Writer

 ·31 May 2026

Following the South African Reserve Bank’s (SARB’s) decision to hike interest rates this week, there is a chance that another hike will follow in July.

This is according to Investec Chief Economist Annabel Bishop, who said the Reserve Bank acted preemptively with its 25bp rate hike this week to get ahead of the second-round effects of higher inflation.

In his briefing, Reserve Bank Governor Lesetja Kganyago flagged inflationary pressures from the Iran War, with energy prices in particular rising sharply.

This led to a higher headline inflation print of 4% in April, which is expected to push higher in May.

Overall, the Reserve Bank has lifted its inflation outlook for 2026 to 4.4% year-on-year, up from the 3.7% at the March meeting, as the Iran War has dragged on longer than expected.

Bishop noted that the SARB’s quarterly projection model shows the repo rate at 6.70% at year-end after this week’s move to 7.00%.

This points to a potential 25bp cut by November 2026.

However, she said the SARB’s QPM interest rate forecasts are not indications of the future MPC decisions but rather show what the repo rate needs to be to achieve the central bank’s inflation outcomes.

Of note is the fact that the Monetary Policy Committee discussed a 50bp hike at the most recent meeting.

This was “a discussion on front-loading of interest rate hikes, given that the quicker they are delivered, the greater the impact they have on lowering inflation,” Bishop said.

“With 25bp delivered, there is a meaningful chance of another hike in July,” she added.

Bishop said the hike in the repo rate this week was pre-emptive, as there is not yet evidence on feed-through effects from higher inflation into higher salary and wage demands.

There is a high degree of uncertainty, but the SARB anticipates second-round effects, she said.

The MPC also expects higher inflation expectations, and said that inflation risks for South Africa have now intensified to the upside.

“There is a higher, and more prolonged, jump in the inflation outlook…and so a greater upside risk of higher inflation without interest rate hikes,” Bishop said.

The economist noted that the interest rate outlook for South Africa will largely depend on the duration and intensity of the oil price shock.

In turn, this relies on the achievement of a peace deal which opens up the Strait of Hormuz and allows safe passage of vessels.

“Despite active negotiations around the peace deal, the ceasefire is under strain, with violations of the ceasefire seen to be occurring on both sides, and indeed some escalation in conflict has occurred most recently,” she said.

The US and Iran have a draft Memorandum of Understanding on the reopening of the Strait of Hormuz, including Iran removing its mines, cutting military action and a sixty-day ceasefire extension.

Sanction relief is being discussed.

“Overall, the SARB’s tone in the MPC statement itself was hawkish, but its interest rate stance, due to the jump in inflation, has become looser,” she said.

“Even despite the 25bp hike, real interest rates are now substantially lower than before April.”

The table below outlines the current baseline expectation for the repo rate, with Investec currently anticipating holding on rates at 7% until 2027.