Two more interest rate increases on the cards for South Africa in 2026

Traders are pricing in two more interest rate increases for South Africa in September and November 2026 as inflation surprises to the upside and becomes entrenched. 

The likelihood of additional interest rate hikes has risen in the wake of the Reserve Bank’s Monetary Policy Committee (MPC), which surprised markets by holding rates in July. 

This surprise saw the rand weaken sharply, which will increase the cost of imports into South Africa and has led economists to forecast higher inflation for longer. 

Stanlib chief economist Kevin Lings explained that the biggest concern for the Reserve Bank will be that inflation appears entrenched. 

This means that the effect of higher fuel prices is spilling over into other areas of the economy, such as food prices, transport, and services. 

Once prices rise in these categories, inflation becomes sticky because prices do not fall as quickly as they rise. 

For example, once a taxi fare rises, it is very unlikely that the increase will be reversed by the same amount a month later if fuel prices fall. 

This means that the inflation is ‘stuck’ in the economy until the price increase rolls off in a year’s time, bringing overall inflation lower. 

Fuel prices are highly volatile, and so the Reserve Bank tries to look through them and understand how other prices in the economy are being affected. 

Lings explained that this is also because the Reserve Bank has more influence over these other prices than over fuel. It cannot meaningfully increase supply or suppress demand for petrol and diesel. 

However, it can suppress demand for lending and consumer spending in other parts of the economy by raising interest rates. 

As such, the bank will focus on what it calls “second-round effects” from fuel price increases to judge whether they have become entrenched in the economy. 

Worryingly, it increasingly appears as though they have. Lings noted that core inflation, which excludes fuel prices, rose to 4% in the latest data release. 

This indicates that prices beyond fuel are rising. However, unfortunate timing meant the latest data did not have such a large impact on the MPC’s latest decision.

Lings explained that the inflation data for June was released on Wednesday, 22 July, the same day as the Reserve Bank’s interest rate meeting. This means it was not included in its latest forecasting model. 

“On the day that the Reserve Bank made the interest rate decision, they started their meeting at 9:00. The inflation numbers were only released at 10:00,” Lings said. 

“And so, they had to try to digest the latest data in the middle of their discussion, which, I would argue, is very difficult to do. They did not have the time to fully incorporate the newest data.” 

Interest rate hikes are coming

One thing is clear – transportation costs are skyrocketing. This has a significant ripple effect on the economy and prices across sectors. 

“In June, inflation went up 0.7% month-on-month, which is substantial by any estimation. Expectations had inflation rising by only 0.4%,” Lings said. 

“This pushed the annual inflation rate to 5%. Now people will reference that rate when setting wage increases and price hikes. This increases the risk that inflation becomes embedded at a high rate.”

Lings explained that food inflation contributed to upward pressure on inflation, but overall, it appeared to be subdued. 

The main driver of inflation was rising transportation costs, which were partly due to fuel prices. However, Lings said the real pressure came from passenger services. 

“This refers to things like taxi fares, which rose 11.5% in June. That is way higher than anticipated. The cost of e-hailing went up 8.5%, and a similar rise occurred in bus fares,” Lings explained. 

“All of those came in above expectations and contributed strongly to the overall inflation rate, which is much higher than the Reserve Bank’s target.” 

Lings said this will increase pressure on the Reserve Bank to act on the elevated inflation rate and bolster its credibility in meeting its new target. 

“The decision to hold rates in July increases the prospect that the Reserve Bank will have to increase rates at its next meeting in September,” Lings said. 

“If I consider where the latest inflation data is, the potential for upside risk to the fuel price, and potential for second-round effects, then I will suggest the Reserve Bank will have to increase rates by 25 bps in September.” 

Lings said this may be followed by another hike in November. The market, at the moment, is pricing in two further 25-basis-point hikes for 2026. 

“There has been discussion that the Reserve Bank will have to hike rates by 50 bps in September to catch up. I think that is unlikely,” Lings said. 

“The economy is very and interest rates are already relatively high. I think the Reserve Bank will continue to adopt a cautious approach, so I would factor in at least one rate hike before the end of the year.”