Top economist shares good news about interest rates in South Africa

Investec chief economist Annabel Bishop said May is not expected to see an interest rate hike from the Reserve Bank’s Monetary Policy Committee (MPC).

This is despite growing inflationary pressures stemming from the Middle East war, with the central bank expected to look through these shocks for the time being.

The Reserve Bank has indicated that it will consider incoming data as it makes interest decisions in the months to come.

At its last meeting in March 2026, the MPC voted to keep rates unchanged, with Reserve Bank Governor Lesetja Kganyago saying the ongoing Middle East conflict is a clear instance of a supply shock.

This type of shock, he explained, raises prices while weakening demand. He noted that the MPC plans to look through the war’s first-round effects and focus instead on second-round effects.

“It is always difficult to assess second-round effects in time. Waiting for clear evidence risks leaving the policy response too late,” he explained. 

“We therefore rely on forecasts, as well as indicators like wages and inflation expectations, to judge if there is a broader build-up of inflation pressure.”

At the time, Kganyago said the world was only a few weeks into this crisis, with the coming months crucial for assessing the long-term consequences of inflation.

However, he said the MPC saw inflation risks to the upside given forecasts at the time.

Since this meeting, the Middle East war has been highly volatile, with peace talks ongoing but uncertain, and no clarity yet on when the conflict will end.

In the meantime, fuel supply remains disrupted, global oil production has fallen dramatically, and inflationary pressures are building.

When the MPC last met, the effects of higher fuel prices had yet to be reflected in South Africa’s inflation data, with March’s CPI rising only modestly to 3.1%.

However, the significant fuel price hikes experienced in April will come through in that month’s inflation data, and may give the Reserve Bank cause for concern.

Interest rates

Bishop said that, to date, the petrol price has risen by R6.53/litre and the diesel price by R7.95/litre. Another fuel price hike is expected for June.

She explained that the oil price shock only started coming through on South Africa’s fuel price in April and will, therefore, impact April’s CPI inflation data.

The impact of the Middle East war has seen inflation expectations for 2026 jump from 3.0% previously to 3.8%. Bishop warned this forecast could lift even further without a moderation in oil prices. 

Despite this, Bishop said this month is not expected to see an interest rate hike from the MPC  when it meets again on 28 May.

“Oil price shocks are typically looked through, with central banks pausing and instead hiking on second-round effects of inflation when it risks becoming embedded,” she said.

The Reserve Bank has said an interest rate hike may be preventative, as the central bank could opt to increase rates before second-round effects appear.

Bishop said the bank’s hawkish tone is also reflected in the 100 basis point total hike of the Reserve Bank’s Forward Rate Agreement (FRA) curve, “although FRAs are typically not good predictors beyond the immediate term”.

The Reserve Bank’s fierce commitment to achieving its new 3% target should also be taken into account for any interest rate forecasts.

Kganyago has made it clear that, while it may take a bit longer than initially expected to achieve the new target, the MPC remains committed to delivering that outcome and “stands ready to act as needed”.

In a recent statement, the governor said the Reserve Bank’s cautious approach to monetary policy over the past year should help the country better navigate the impact of the Middle East war.