The Monetary Policy Committee voted 4-2 in favour of holding rates, with two members supporting a 25-basis-point hike. The prime lending rate will remain at 10.5%.
Surprise Decision Amid Rising Prices
The decision came as a surprise to most economists. A Reuters poll had predicted a 25-basis-point increase after annual consumer inflation accelerated to 5% in June—its highest level in two years—from 4.5% in May.
Reserve Bank Governor Lesetja Kganyago said while the inflation outlook had "improved slightly," it remained "too high" with slow growth.
"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".
Inflation Drivers and Economic Outlook
Kganyago attributed the recent inflationary pressure largely to higher fuel prices caused by supply disruptions linked to the conflict in the Middle East. He noted that the shocks have weighed on household spending and investment, while "municipal dysfunction has become a binding constraint on growth".
The central bank expects the economy to recover in the second half of the year as external shocks ease and domestic reforms gradually take effect.
"We are setting policy to achieve 3% inflation over time, ensuring the current supply shock does not de-anchor inflation expectations".
Regional Context
The decision places South Africa alongside Ghana and Nigeria, whose central banks also left interest rates unchanged this week as policymakers across Africa weigh rising geopolitical risks against still-fragile economic recoveries.
Despite the Reserve Bank's cautious stance, analysts warned that interest rates could still rise later this year if inflation risks intensify. Standard Bank Group's head of macroeconomic research noted that policymakers remained particularly concerned about services inflation, which tends to be more persistent.
Nevertheless, the Bank's quarterly projection model continues to show a lower repo rate of 6.79% in the fourth quarter of 2026 and 6.24% in the fourth quarter of 2027, suggesting the possibility of rate cuts should inflationary pressures ease.
With reporting from SAnews, Xinhua, Business Day, Business Day Nigeria, Nairametrics, EWN, Mail & Guardian, and Reuters.
