The South African Reserve Bank kept its repo rate unchanged at 6.75% on Thursday, citing the ongoing Iran war and rising oil prices. Governor Lesetja Kganyago said inflation remains on target but could accelerate if the conflict persists. The bank warned of potential rate hikes later this year.
The South African Reserve Bank's Monetary Policy Committee (MPC) unanimously decided to hold the repo rate steady at 6.75% during its meeting on Thursday in Pretoria, leaving the prime lending rate at 10.25% unchanged. Reserve Bank Governor Lesetja Kganyago announced the decision, noting that February consumer price inflation stood at 3%, precisely in line with the bank's 3% target, which includes a one percentage point tolerance band on either side. Core inflation was also at 3% for the month. Kganyago stated, “Inflation was 3% for February, with core inflation also at 3%. This is precisely in line with our target. Higher energy prices will raise inflation in the near term. We expect that the headline will soon accelerate to around 4% with fuel inflation over 18% for the second quarter. Our baseline focus then has a gradual unwinding of the shock, taking inflation back to three per cent late next year.” The MPC highlighted risks from the Middle East conflict, which began with US and Israel attacks on Iran on 28 February, disrupting global fuel supplies and pushing oil prices higher. The bank outlined two scenarios: one where the Iran war lasts another two months with oil averaging nearly $100 per barrel and the rand 5% weaker against the dollar, leading to inflation exceeding 4% and requiring one rate hike; and a more extreme case of the war lasting over a year, with oil above $100 per barrel and the rand 10% weaker, pushing inflation to 5% and necessitating several hikes. The MPC described the conflict as a supply shock, advising vigilance on second-round effects. Economic growth forecasts for 2026 remain at 1.4%, though downside risks have emerged. Kganyago added, “The fact is, we are still only a few weeks into this crisis. The coming months will be crucial for assessing the longer-term inflation consequences. Given current forecasts, we see inflation risks to the upside.” Standard Chartered Bank's chief Africa economist Razia Khan noted that the risk of the next rate move being a hike has increased due to geopolitics.
