Big changes to how the Reserve Bank determines interest rates

The South African Reserve Bank has begun using direct feedback from businesses to better gauge economic activity and help guide monetary policy.

“Industry engagement is standard practice among leading central banks,” the SARB said in its biannual Monetary Policy Review published Tuesday.

“It provides timely indicators of economic activity and pricing pressures, supports interpretation of official data and is particularly valuable during periods of heightened uncertainty or when data are published with long lags — such as gross domestic product.”

Following pilot interviews in August 2025, the program has broadened to most major economic sectors, it said.

The engagement is similar to the Bureau for Economic Research’s inflation expectations survey but accounts for more variables and is conducted between each rate-setting meeting.

This makes it more frequent and more timely, Witness Simbanegavi, divisional head of policy development at the central bank, said.

“We have to look at investment, we look at demand, we look at cost, wage pressures, and a host of things,” he said.

Since the Iran war erupted in late February, participants have reported weakening economic momentum, reversing the optimism they expressed at the start of the year, the bank said.

The conflict has driven up oil prices, pushing up local gasoline costs and fueling inflation, which has remained above the central bank’s 3% target since March.

Initial outcomes indicate firms’ concerns about how long they can absorb the shocks stemming from the war, Simbanegavi said.

“The other question now is, if the prices remain elevated, how long can they absorb these costs before they start passing on, because once they start passing on the prices, inflation goes up.” 

Combined with other high-frequency indicators, the feedback gave policymakers a clearer picture of the domestic impact of the Middle East war, particularly how quickly and extensively the fuel-price shock was feeding through to consumer prices, the bank said.

Policymakers hiked interest rates by a quarter point in September to 7.25%, and markets anticipate two more increases over the next six months.