Close call for interest rates: five economists predict what the Reserve Bank will do
The South African Reserve Bank’s Monetary Policy Committee (MPC) will announce its interest rate decision on Thursday, 23 July.
Experts are expecting the MPC to hike South Africa’s interest rates by 25 basis points again, as inflationary pressures stemming from the Middle East war continue to build.
The decision will come after the release of South Africa’s latest inflation data on Wednesday, 22 July, which showed that CPI inflation hit a high of 5% in June.
This is the highest South African inflation has been since June 2024, when the Reserve Bank was maintaining the repo rate at 8.25%.
In 2026 to date, the MPC has raised interest rates by 25 basis points. This hike was implemented at its May meeting and brought the repo rate to 7%.
In announcing this decision, Reserve Bank Governor Lesetja Kganyago explained that the MPC sees upside risks to inflation.
The MPC raised its oil price assumptions in May, and said it expects renewed pressure on food prices due to higher agricultural input costs for diesel and fertiliser.
“Our forecast now has headline inflation averaging 4.4% this year and 3.7% next year, before returning to the 3% target in 2028,” Kganyago said.
He added that core inflation is also higher and is expected to peak in early 2027. He said these projections entail some second-round effects stemming from the Iran war.
The governor noted that the MPC does not have clear confirmation of these second-round effects in the data, but market indicators and analyst expectations are edging higher.
However, the MPC’s decision to hike interest rates in May was split, with four members favouring an increase and two preferring a pause.
“The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second-round effects,” Kganyago said.
“Our decision was aimed at managing risks and ensuring that inflation returns to target.”
Now, as the MPC meets again this week to decide the fate of South Africa’s interest rates, it faces an even higher inflation rate than in May.
While the committee considers various data points beyond the latest inflation data, June’s 5% CPI print could raise concerns about the inflation trajectory.
Daily Investor compiled projections from five economic experts to gauge what they expect the MPC to do at its 23 July meeting. Two expect a close call, but a hawkish hold, while three predict a hike.
Frank Blackmore – KPMG South Africa lead economist
KPMG South Africa’s lead economist, Frank Blackmore, said the MPC’s decision comes in light of hostilities in the Middle East escalating once again.
Prior to the renewed conflict, when a ceasefire deal appeared to be in place, it would have been safe to assume that the MPC would favour keeping rates steady.
This is because, under the ceasefire condition, oil prices would likely have fallen, and the rand’s strength would have promoted lower inflation.
However, with the commencement of the war, Blackmore said the bank will have to consider the impact of conflict over a prolonged period of time.
He said the MPC will need to decide whether this requires an additional increase in the Reserve Bank’s policy rate.
“It is the feeling of this organisation that there may be an additional 25 basis points increase in the repo rate at the next Monetary Policy announcement,” he said.
Annabel Bishop – Investec chief economist
Investec chief economist Annabel Bishop explained that June’s 5% CPI print came on the back of a R1.43/litre hike in the petrol price.
She said that, excluding food, non-alcoholic beverages, fuel, and energy prices, the core measure of CPI inflation also rose.
Core CPI inflation reached 4.1% in June, up from 3.8% in May and 3.6% in April. She added that underlying inflationary pressures are also rising inexorably.
This has coincided with an increase in the Brent crude oil price, which has risen to $94.2/bbl as the war in the Middle East exacerbates.
“The jump in the oil price, and concomitant lift in international petroleum prices, is likely to see the MPC hike its repo rate by 25 basis points,” she said.
Bishop pointed out that the MPC discussed a 50-basis-point increase at its May meeting, and this will likely be back on the table as the Reserve Bank seeks to contain inflation expectations.
Dr Lerato Ntuli – Anchor Capital economist
Anchor Capital economist Dr Lerato Ntuli said South Africa’s inflation risks remain skewed to the upside amid renewed tensions in the Middle East.
One positive is that the rand remained relatively strong in June, averaging R16.38 against the United States dollar. Ntuli said the rand’s strength contributed to a substantial reduction in domestic fuel prices in July.
As a result, the price of Petrol 93 declined by 201 cents/litre, while diesel fell by 358.8 cents/litre, providing temporary relief to consumers and businesses.
“However, the recent re-escalation of tensions between the US and Iran has reignited inflation concerns,” she said.
“Supply disruptions through the Strait of Hormuz have pushed Brent crude oil prices above $90/bbl, increasing the risk of higher fuel costs and renewed energy-driven inflation pressures.”
Ntuli warned that elevated oil prices are also likely to increase fertiliser and transport costs, raising production expenses for farmers.
“If sustained, these higher input costs could discourage planting activity, reduce the area under cultivation, constrain agricultural output, and ultimately place upward pressure on food prices,” she said.
Ntuli said the prolonged conflict between the United States and Iran continues to pose risks to global energy markets.
In addition, the increasing probability of an El Niño weather event, coupled with elevated fertiliser costs, has heightened the risk of higher food inflation.
“Against this backdrop, we expect the Reserve Bank’s MPC to raise the repo rate by 25 basis points at its upcoming meeting,” she said.
This hike will reinforce the Reserve Bank’s commitment to anchoring inflation expectations closer to its preferred 3% target.
Lisette Ijssel de Schepper – Bureau for Economic Research chief economist
The Bureau for Economic Research’s (BER) chief economist, Lisette Ijssel de Schepper, said the MPC’s decision is set to be a “close call”.
“Following the May 4-2 split vote in favour of a hike, next week’s decision is likely to be another close call, but we expect the balance to shift towards a hawkish hold,” she said.
She explained that the BER’s Inflation Expectations Survey for the second quarter of 2026 showed a broad-based and larger-than-expected increase in inflation expectations.
“However, the survey also captured sentiment at the height of the recent oil shock, when fuel prices were rising sharply, and a de-escalation in the Middle East appeared unlikely,” she said.
“While this week’s renewed tensions remind us that geopolitical risks remain elevated, recent months have also demonstrated that oil prices can retreat quickly when supply responds.”
This, she explained, makes the balance of risks more two-sided than during the height of the conflict.
“Against that backdrop, the SARB is likely to revise down its rand exchange rate and Brent crude oil assumptions, resulting in a more benign near-term inflation profile,” she said.
However, she also pointed out that central banks ultimately want to manage risks over the medium term.
“Even for policymakers looking 18 to 24 months ahead, a week can be a very long time when geopolitical tensions are evolving this rapidly,” she said.
“Should oil prices move materially higher again or the conflict escalate further before Thursday’s meeting, it would be difficult to fault policymakers for becoming more cautious.”
Normally, she said a single inflation print, like the one for June, is unlikely to sway the MPC’s decision one way or another.
However, given how finely managed Thursday’s meeting appears to be, a meaningful upside or downside swing could prove more influential than usual.
Johann Els – PSG Financial Services chief economist
PSG Financial Services’ chief economist, Johann Else, said that while June’s inflation print is higher than the Reserve Bank would like to see, it is important to consider what drove this rise.
“It’s important to remember that most of this increase is being driven by fuel prices. There is still very little evidence of meaningful second-round inflation effects,” he said.
“I expect inflation to ease back to around 4.3% in July (following a 201 cents per litre price reduction in petrol), remain around that level in August, and then drift towards 4.0% by year-end.”
Els expects inflation to come in at around 4.0% in 2026, then ease further to around 3.5% in 2027.
“The June inflation number itself is unlikely to have much influence on the MPC decision the following day,” he said.
“The Reserve Bank would already have completed its own inflation forecasts before the official June data is released.”
He said that after the Reserve Bank’s early and pre-emptive 25-basis-point rate hike in May, it was unlikely they would need to raise rates again in July.
However, the renewed conflict in the Middle East over the past week, and the resulting increase in oil prices, have made that call more difficult.
Els said there is a case for another hike, with oil prices and inflation expectations higher. This could concern the MPC about second-round inflation effects over the coming months.
On the other hand, Els said there are also good reasons to keep rates unchanged, since the inflation expectations survey was conducted when oil prices were above $100/bbl.
“More importantly, the Reserve Bank acted proactively in May. At the time, I argued that an early rate hike would reduce the need for further tightening later, and I still think that argument holds,” he said.
“It is also important to note that many other central banks have not hiked rates. In addition, the rand exchange rate has remained remarkably stable.”
Ultimately, Els predicts that the MPC’s Thursday meeting will be a close call, and he expects a divided vote among MPC members.
“For now, I still lean towards the Reserve Bank leaving interest rates unchanged,” he said.
“The renewed conflict has undoubtedly increased the risks and made the decision much closer, but my base case remains that rates stay on hold.”
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