JOHANNESBURG, South Africa (XOL Africa) — The South African Reserve Bank’s Monetary Policy Committee kept its policy rate unchanged at 7% on Thursday, saying inflation remains too high and economic growth is weak amid renewed volatility in global oil prices and uncertainty caused by the conflict in the Middle East.
Four members of the committee voted to hold the rate, while two favored a 25-basis-point increase, according to a statement issued by Reserve Bank Governor Lesetja Kganyago.
“The committee agreed that the outlook is uncertain, and with the rate increase at our previous meeting, the policy stance is appropriate for now, with rates somewhat restrictive,” Kganyago said.
The decision comes as oil prices have rebounded to around $90 a barrel after falling to about $70 earlier in July. The central bank said disruptions linked to the Middle East conflict have affected supply chains and incomes, while increased investment in artificial intelligence infrastructure and high valuations of AI-related companies have provided some support to the global economy.
The bank said global growth and inflation forecasts remain broadly unchanged since its previous meeting.
South Africa’s economy grew at an annual rate of nearly 2% in the first quarter, beating expectations, but the expansion was driven mainly by higher net exports rather than stronger domestic demand.
The central bank expects economic growth to slow in the second and third quarters, citing a sharp decline in consumer confidence, weaker business confidence and reduced activity across several sectors since the outbreak of the conflict.
“We see downside risks to growth,” the statement said.
The bank also highlighted higher fuel costs, uncertainty weighing on investment and what it described as growing municipal dysfunction as constraints on South Africa’s economic performance.
It said the economy could return to a stronger growth trajectory as global conditions stabilize and domestic reforms take effect. Its baseline forecast is for an economic recovery to begin in the second half of the year, although the outlook remains uncertain.
Inflation, meanwhile, has remained above the bank’s target. The latest inflation rate stands at 5%, compared with the central bank’s target of 3% with a tolerance band of plus or minus 1 percentage point.
The bank expects headline inflation to remain above 4% until early next year, largely because of higher fuel costs and renewed volatility in global oil prices.
“Inflation is still too high, while growth is weak,” Kganyago said.
The rand has remained relatively resilient against the dollar and has strengthened against the euro, helping to contain imported inflation. Food inflation has also eased, supported by good harvests and fading effects from the foot-and-mouth disease outbreak.
However, the central bank warned that services inflation remains a concern, with inflation in areas including insurance, transport and housing now well above 3%.
The bank also said inflation expectations had increased, particularly in the short term, according to the latest survey by the Bureau for Economic Research. Trade unions recorded the largest increase in inflation expectations among the surveyed groups.
The central bank’s forecast model indicates that the policy rate will remain broadly stable for the rest of the year, followed by possible cuts later in the forecast period as inflation falls toward the 3% target and interest rates move closer to neutral levels.
The bank stressed, however, that the projected rate path is only a broad guide and that future decisions will be made on a meeting-by-meeting basis.
“For expectations, after the upside surprise in the recent survey, we looked at what could happen if expectations keep on rising throughout this year,” the statement said.
Under that scenario, the bank said rising inflation expectations could increase wage pressures and push up core inflation, requiring one additional rate hike and a longer period of restrictive monetary policy.
The bank also considered scenarios involving oil prices. An adverse scenario based on oil averaging $100 a barrel in 2026 and gradually falling to $80 by 2029 would keep inflation above target and require an additional rate increase this year.
A more favorable scenario, with oil averaging $78 a barrel this year and falling to $60 by 2029, would allow inflation to return to target more quickly and create room for rate cuts this year.
Kganyago said the central bank’s primary objective remains bringing inflation sustainably back to 3% while preventing temporary supply shocks from becoming entrenched in inflation expectations.
“Our main contribution is to stabilise inflation in line with our 3% target, over time, and the MPC will act as needed to achieve that,” he said.
The next policy rate decision is due on Sept. 23, 2026.
