Bank of America expects two more interest rate hikes in South Africa

Rising inflation risks from the Iran war-induced oil shock and the Federal Reserve’s recent decision to raise borrowing costs have prompted Bank of America to pencil in two more interest-rate increases by the South African Reserve Bank this year.

“We now expect two additional 25 basis point hikes, in September and November, taking the repo rate to a 7.5% peak,” Tatonga Rusike, the bank’s sub-Saharan Africa economist, wrote in a note.

The forecast contrasts with those of other investment banks, including Morgan Stanley and Goldman Sachs Group Inc., which expect another single 25 basis-point increase in 2026.

Governor Lesetja Kganyago will announce the interest-rate decision shortly after 3 p.m. on Wednesday, with most economists in a Bloomberg survey expecting a quarter-point increase to 7.25%

BofA, which had previously anticipated a single hike, also adjusted its inflation projections.

Although inflation expectations — used to guide policymakers on borrowing costs — came in softer, dipping to 3.8% in the third quarter from 3.9% previously, oil risks lie ahead, Rusike said.

“In our previous note, we argued that inflation had likely peaked at 5%,” he said. Since then, the US-Iran conflict has reescalated and oil prices have risen above $100 per barrel, materially changing the inflation outlook, he added.

“We now expect headline inflation to average 5% in the fourth quarter” and peak at 5.3% in the first quarter of next year.

The central bank’s easing cycle is also likely to be delayed to the second half of 2027, Rusike said.