The South African Reserve Bank raised its repurchase rate by 25 basis points to 7.00 percent on Thursday, its first increase since May 2023, ending the easing cycle that began in September 2024. The prime lending rate at commercial banks rises to 10.50 percent. The new repo rate takes effect on 29 May 2026.
The Monetary Policy Committee's vote was 4-2, with two members preferring to keep policy on hold. Governor Lesetja Kganyago said the committee agreed that inflation risks had intensified and that large and overlapping shocks would likely trigger second-round effects.
INFLATION RISKS INTENSIFY
The SARB's updated forecast has headline inflation averaging 4.4 percent in 2026 before easing to 3.7 percent in 2027, before returning to the 3 percent target in 2028. The forecasts were raised from 3.7 percent and 3.3 percent previously. The MPC set out three risk scenarios; in the most adverse, combining a prolonged Middle East conflict, El Niño and non-linear effects, inflation would peak above 6 percent and require three additional hikes.
The SARB cut its growth forecasts for 2026 and 2027 to 1.2 percent and 1.7 percent, from 1.4 percent and 1.9 percent.
END OF THE EASING CYCLE
The decision ends the rate-cutting phase that began in September 2024. Headline inflation rose to 4 percent in April from 3.1 percent in March, mainly because of higher energy costs, with fuel prices rising 11.4 percent in April after falling 8.7 percent in March, and services inflation accelerating to 4.6 percent. Among emerging markets, the Philippines and Sri Lanka have also raised rates since the start of the Iran war in late February, Reuters reported.
The committee also discussed a 50-basis-point hike but opted for a more cautious step while awaiting more data, Kganyago told a press conference.
The full monetary policy statement was published on the SARB website.
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