Investec economist says an interest rate hike is on the cards

Investec chief economist Annabel Bishop said the Reserve Bank’s Monetary Policy Committee (MPC) may hike South Africa’s interest rates as soon as May or July 2026.

However, there may still be some relief, with Bishop also projecting one or two interest rate cuts later in the year.

In a recent press release following the MPC’s latest meeting on 26 March 2026, Bishop warned that South Africans may be in for a price shock soon.

This comes as the Middle East war has seen global oil prices surge, with South African motorists set to see significant increases at the pump come April.

Bishop said the fuel price under recoveries for April, which give an idea of expected price increases, are near R5.80/litre for petrol, R10.15/litre for diesel, and R1.00/litre for illuminating paraffin.

“Businesses’ margins will not be able to absorb these fuel price increases, and the pass-through to consumers is expected to occur quite soon,” she said.

Bishop added that some second-round effects could also be apparent in April’s consumer price index (CPI) print, but will certainly come through in May and onwards.

At its latest meeting, the Reserve Bank acknowledged these inflationary pressures, increasing its CPI outlook to 4% in the second quarter of 2026, driven largely by fuel price inflation of around 18%.

Bishop explained that, given the higher inflation outlook, the MPC may hike interest rates at its next meeting in May, though it appears the Reserve Bank’s models indicate a hike in July.

However, she pointed out that the Reserve Bank’s forecast still indicates a 25 basis point cut by the end of the fourth quarter of 2026.

This, she said, indicates the potential for a 25 basis point hike first this year, potentially followed by one or two 25 basis point cuts.

Bishop’s projections therefore show the repo rate standing at 6.50% at the end of 2026, 25 basis points below the current level.

The worst-case scenario for interest rates

It should be noted that both Bishop’s and the Reserve Bank’s predictions are highly dependent on developments in the Middle East and their effect on oil prices, the rand, and inflation.

At the March MPC meeting, Reserve Bank Governor Lesetja Kganyago outlined two scenarios to illustrate the potential impact of the US/Israel-Iran war on South Africa’s inflation and interest rate trajectories.

In the first scenario, the bank assumed that the conflict lasts another two months, with oil prices averaging nearly $100 per barrel and the rand about 5% weaker against the dollar. 

The second, more extreme scenario, sees the war lasting over a year, with oil prices staying above $100 per barrel and the rand 10% weaker.

“In both scenarios, inflation is higher, exceeding 4% in the first version and 5% in the second,” Kganyago explained. “Both call for higher interest rates this year, with one hike in the first scenario and several more in the other.” 

However, he said inflation should then slow as oil prices start easing and the interest rate hikes take effect. 

The conflict and its effect on inflation will also impact the timeline for South Africa reaching its new inflation target of 3%. 

This target was reached in February, but many expect CPI in March and the months to come to exceed this target significantly.

In the Reserve Bank’s first scenario, the country is back to target in 2027. In the second scenario, this only happens in 2028. 

“When we adopted the new 3% inflation target, we were clear that achieving it could take a couple of years,” Kganyago said.

“Until recently, conditions were favourable, and it looked like we would get there fast. Now there has been a negative shock, and it could take a bit longer.” 

However, the governor reassured South Africans that all the central bank’s forecasts indicate inflation reverting to 3% over the next two years.