Reserve Bank keeps interest rates unchanged

The Reserve Bank’s Monetary Policy Committee (MPC) has decided to keep interest rates unchanged.

This will see the Reserve Bank’s policy rate, also known as the repo rate, remain at 7% and the prime lending rate at 10.50%.

The MPC’s decision comes amid mounting inflationary pressure stemming from the Iran war, with tensions having escalated in recent weeks despite a previously agreed-upon ceasefire.

On Thursday, 23 July, Reserve Bank Governor Lesetja Kganyago announced that the MPC voted to keep interest rates unchanged. This comes after a 25-basis-point hike in May.

The decision was not unanimous, with four members voting for a hold while two preferred a 25-basis-point hike.

“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 MPC’s decision comes after June’s inflation print showed that CPI inflation had hit a high of 5%, up significantly from 4.5% in May.

This is the highest inflation has been since June 2024 and is also far above the Reserve Bank’s target of 3%.

Inflationary pressures are mounting, as the re-closure of the Strait of Hormuz is putting pressure on oil prices and, therefore, the price of fuel and other goods in South Africa.

Therefore, the MPC’s decision to keep rates unchanged was not anticipated by many economists, who expected the committee to adopt a more hawkish stance.

June’s high CPI print came on the back of a R1.43 per litre hike in the petrol price. However, core CPI, which excludes fuel and energy prices, was also higher at 4.1%.

Inflation expectations are edging higher, with the BER’s Inflation Expectations Survey for the second quarter of 2026 showing a broad-based and larger-than-expected increase.

Positively, while inflation has risen, the rand has remained remarkably resilient amid these pressures, providing some buffer for South Africa.

In announcing the MPC’s decision to keep rates unchanged, Kganyago said the Reserve Bank’s Quarterly Projection Model (QPM) shows the policy rate remaining broadly stable for the rest of the year.

However, he said the MPC sees upside risks to inflation, with Kganyago specifically referring to the rising inflation expectations shown in the BER’s survey.

He said conditions for services inflation look particularly problematic, with most components now well above 3%. This includes insurance, transport, and housing.