SARB Increases Repo Rate to 7% Amid Rising Inflation Concerns

The South African Reserve Bank (SARB) has announced a 25 basis point increase in the repo rate, pushing it to 7%, with the new rate taking effect from 29 May 2026.

Speaking during a media briefing on Thursday, SARB Governor Lesetja Kganyago confirmed that the Monetary Policy Committee (MPC) voted in favour of the hike, with four members supporting the increase while two members preferred rates to remain unchanged.

According to Kganyago, the central bank acted in response to growing inflationary risks and global uncertainties that could place additional pressure on the South African economy.

He explained that the MPC assessed several major risk factors during its latest meeting, including the possibility of an extended conflict in the Middle East, which could drive up oil and food prices while weakening the rand.

Another concern was the potential return of El Niño weather conditions, which are often linked to drought and agricultural disruptions across parts of Southern Africa.

The committee also evaluated the impact of severe economic shocks that could result in higher costs being passed directly onto consumers, leading to stronger inflation pressures.

Kganyago warned that these combined risks could slow economic growth while pushing inflation higher than expected.

Under the most severe scenario considered by the MPC, inflation could rise above 6%, potentially forcing the Reserve Bank to implement additional interest rate hikes in the future.

The SARB has also adjusted its assumptions regarding global oil prices and warned of renewed food price pressures as farmers face rising diesel and fertiliser costs.

The bank now forecasts headline inflation to average 4.4% in 2026 before easing to 3.7% next year. Inflation is expected to return to the Reserve Bank’s preferred 3% target by 2028.

Recent economic data has already shown signs of increasing pressure on consumers. Inflation climbed to 4% in April, up from 3.1% in March, largely driven by rising energy prices.

Fuel prices recorded a sharp turnaround, moving from an 8.7% decline in March to an 11.4% increase in April — one of the steepest rises in recent years.

Meanwhile, services inflation accelerated to 4.6%, exceeding the Reserve Bank’s target range, with transport, insurance, and financial services among the key contributors to higher costs.

Economists expect the latest repo rate increase to place additional pressure on households and businesses already dealing with higher living expenses and borrowing costs.