Reserve Bank’s interest rate dilemma

South African inflation held steady in May as uncertainty around its outlook mounts, complicating the task for the Reserve Bank when it meets next month.

Consumer prices rose 2.8% from a year earlier, compared with 2.8% in the prior month, Pretoria-based Statistics South Africa said on Wednesday in a statement on its website.

That matched the median estimate of 12 economists in a Bloomberg survey. 

New risks to the central bank’s inflation outlook have emerged since the monetary policy committee cut interest rates by 25 basis points last month to 7.25%, likely prompting caution when officials announce their decision on July 31.

Oil prices have surged to $76 a barrel as concerns grow that the Israel-Iran conflict, which has entered its sixth day, may escalate. The MPC had foreseen it averaging $70 this year, revised down from a previous forecast of $76.2. 

The MPC will also have to assess the impact the potential reinstatement of US President Donald Trump’s reciprocal tariffs on July 9 will have on inflation and economic growth. 

“The global environment within which we operate is actually very tough,” Governor Lesetja Kganyago said earlier this month. “We are also exposed to risks that come from global tensions.”