The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) has voted to raise interest rates by 25 basis points.<\/p>\n\n\n\n
This raises the country\u2019s repo rate to 7.25%, with the prime rate rising to 10.75%. The six-person committee voted unanimously.<\/p>\n\n\n\n
According to Reserve Bank governor Lesetja Kganyago, while global growth has managed to weather the storms created by the energy shocks of 2026, the cracks are showing.<\/p>\n\n\n\n
For South Africa, it is clear that the energy crisis is hitting growth, he said.<\/p>\n\n\n\n
“Shocks are multiplying, and vulnerabilities are increasing. The global economy is not in a healthy space,” he said.<\/p>\n\n\n\n
“In our last meeting we warned of downside risks to growth. The data has now shown that the economy contracted in the second quarter, by 0.2%.”<\/p>\n\n\n\n
While growth is under pressure, the SARB still expects a rebound during the second half of the year, with annual growth projected at 1.2%, and 2% over the medium term.<\/p>\n\n\n\n
However, growth risks are skewed to the downside.<\/p>\n\n\n\n
The central bank is raising its inflation expectations, driven by fuel prices. Petrol is rising again after moderating between June and August, with an average under-recovery of R2.83 per litre, currently.<\/p>\n\n\n\n
“Headline inflation will likely be above 5% later this year and early next year, before slowing as the fuel shock recedes. We currently expect inflation to be back around 3% towards the end of 2027,” Kganyago said.<\/p>\n\n\n\n
In contrast to fuel, developments in inflation for food and core goods have been more favourable. <\/p>\n\n\n\n
“Import prices remain contained, with help from the rand, which has been notably resilient throughout the year. Meanwhile, food inflation is at its lowest since 2010,” he said.<\/p>\n\n\n\n
“This reflects strong harvests, as well as a levelling off in meat prices following the outbreak of foot-and-mouth disease. We may start to see drought pressures from El Ni\u00f1o soon, but for now agricultural conditions are broadly favourable.”<\/p>\n\n\n\n
The bank’s decision is in line with market expectations.<\/p>\n\n\n\n
Ahead of the meeting, economists and analysts widely expected the SARB to hike rates by 25 basis points, with only a few assessing room for a hold.<\/p>\n\n\n\n
Those hoping for a hold were banking on the SARB looking through the inflation shock caused by external factors, such as energy prices.<\/p>\n\n\n\n
Kganyago said that the MPC’s approach was to look through the initial effects of price shocks, while ensuring that they do not entrench higher inflation. <\/p>\n\n\n\n
“Unfortunately, large and sustained shocks, like those we are experiencing now, are more likely to trigger second-round effects, where individual price changes evolve into widespread increases,” he said.<\/p>\n\n\n\n
To prevent this, the bank is adopting a more restrictive monetary policy, with rates above longer-term levels.<\/p>\n\n\n\n
Looking ahead, Kganyago said that the forecast from the SARB’s Quarterly Projection Model (QPM) has the policy rate broadly stable through the remainder of the year. <\/p>\n\n\n\n
The model shows cuts later in the forecast period, as inflation falls to 3% and the QPM moves toward a more neutral policy stance.<\/p>\n\n\n\n
“As before, this rate path remains a broad policy guide. Our decisions will continue to be taken on a meeting-by-meeting basis, with careful attention to the outlook, data outcomes, and the balance of risks to the forecast,” the governor said.<\/p>\n\n\n\n
The SARB’s next MPC meeting, and final for the year, will be held in November.<\/p>\n","protected":false},"excerpt":{"rendered":"
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