The South African Reserve Bank (SARB) has opted to maintain its benchmark repurchase rate at 6.75%, a decision unanimously taken by the Monetary Policy Committee (MPC) on March 26 amid escalating global tensions in the Middle East. This marks the second consecutive hold following a pause in January, with Governor Lesetja Kganyago saying the Bank sees inflation risks to the upside.

Governor Lesetja Kganyago underscored the precarious international backdrop in his post-decision remarks, pointing to the Iran conflict's ripple effects. "Prices for commodities like oil, gas and fertiliser have moved sharply higher. Meanwhile, there have been broad losses across equity, bond and currency markets," Kganyago stated. He added that major central banks worldwide are adopting a wait-and-see approach, with markets slashing expectations for rate cuts and even pricing in potential hikes. Kganyago said that "global inflation will be higher in the near term, while growth will probably suffer from supply-chain disruptions and rising costs."

INFLATION TARGETS HOLD FIRM

South Africa's inflation is at the SARB's new 3% target, offering some reassurance. Headline inflation stood at 3% in February, matched by core inflation, according to the latest figures. However, Kganyago warned of upward pressures ahead, forecasting headline inflation to accelerate to around 4% soon, with fuel inflation above 18% in the second quarter. Kganyago said central banks should be alert to second-round effects, where an initial shock triggers broad price increases.

The hold keeps the prime lending rate at 10.25%.

GROWTH RECOVERY AT RISK

The economy grew further in the fourth quarter of 2025, with output rising by 1.1% for the year as a whole. Kganyago said this was better than recent years but still well below longer-run averages. He cited green shoots such as rising confidence and stronger investment, but warned that the ongoing war could interrupt the growth recovery. The SARB still projects growth rising to around 2% over the next few years, but now sees downside risks to the outlook.

GLOBAL CONTEXT SHAPES POLICY

Kganyago noted that "leading central banks have generally kept rates unchanged, as they await more information," and that probabilities of rate hikes have risen.

During the COVID-19 pandemic the SARB cut the repo rate to 3.5%, before a hiking cycle that took it to a peak of 8.25% in 2023. The easing cycle began in September 2024, and the rate has stood at 6.75% since November 2025. The Bank's Quarterly Projection Model, which had previously forecast rate cuts in the second half of the year, has now removed those expectations.

SCENARIOS POINT TO HIKES

The SARB modelled two adverse scenarios: one in which the conflict lasts another two months or so, with oil averaging nearly US$100 a barrel and the rand about 5% weaker, and a more extreme one in which the war lasts over a year, with oil above US$100 and the rand 10% weaker. Kganyago said both scenarios call for higher interest rates this year, with one hike in the first scenario and several more in the second.

Under the baseline forecast, inflation returns to 3% late next year; in the adverse scenarios it is back to target during 2027 and only in 2028 respectively, Kganyago said.