Double-blow for South Africans with interest rate hike and fuel price pain

The South African Reserve Bank’s Monetary Policy Committee (MPC) has voted to hike interest rates by 25 basis points amid rising inflationary pressures stemming from the Middle East war.

On Thursday, 28 May, the MPC met to discuss South Africa’s monetary policy trajectory, where it decided to increase the country’s interest rates by 25 basis points.

This will see the Reserve Bank’s policy rate, also known as the repo rate, increase to 7%, with the prime lending rate now at 10.50%.

The MPC’s decision was not unanimous, with four members voting for a hike while the other two preferred to keep rates unchanged.

“The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second-round effects, requiring a monetary policy response,” Reserve Bank Governor Lesetja Kganyago said.

“Our decision was aimed at managing risks and ensuring that inflation returns to target.”

This decision came after Statistics South Africa reported that CPI inflation shot up to 4% in April, up significantly from 3.1% in March. This puts inflation at the upper end of the Reserve Bank’s target, which is now 3% with a one-percentage-point tolerance band.

The Middle East war has seen the Strait of Hormuz, a critical oil supply trade route, effectively closed since the start of March.

This has led to an oil supply crunch, which, in turn, has seen oil prices skyrocket and led to higher fuel prices in South Africa and globally.

While the National Treasury has partially offset these price hikes by implementing a temporary reduction in fuel taxes, South Africans are still paying significantly more for petrol and diesel than they did at the start of 2026.

Since fuel is a foundational input cost across South Africa’s economy, affecting anything from food prices to transportation costs, the rise of petrol and diesel prices presents a notable inflationary pressure.

Amid this pressure, all eyes have been on the Reserve Bank’s MPC to see how South Africa’s monetary policy would respond.

Expert predictions ahead of the committee’s decision were mixed, with some expecting the MPC to take a wait-and-see approach and consider any potential second-round effects stemming from the global oil crisis.

Others predicted the hike, saying that the Reserve Bank cannot afford to be soft on inflation as it chases a lower target and wants to avoid higher inflation expectations from becoming embedded.

In announcing the MPC’s decision to hike, Kganyago explained that April’s CPI increase came on the back of the largest jumps in fuel inflation on record.

While this was slightly offset by a stronger currency, he said the MPC still sees upside risks to inflation and forecasts that headline inflation will average 4.4% this year and 3.7% next year.

Positively, the committee sees inflation returning to its 3% inflation target in 2028.

“These projections entail some second-round effects, as the shock broadens out into wages and inflation expectations,” Kganyago said.

“At this early stage, we do not have clear confirmation of these effects in the data. New results from our main survey of inflation expectations will only be available next month. However, market indicators and analyst expectations are edging higher.”

The Reserve Bank’s Quarterly Projection Model shows one hike this quarter, but expects inflation to fall later in the forecast, which should see interest rates easing again.