Repo rate hits 7.25% as global shocks and Middle East conflict fuel inflation fears

The South African Reserve Bank's Monetary Policy Committee has raised the repo rate by 25 basis points to 7.25%, taking the prime lending rate to 10.75%, in a unanimous decision announced on Wednesday afternoon.

Governor Lesetja Kganyago said the hike came against a challenging and uncertain global backdrop, pointing to an escalation in the Middle East conflict since the committee's previous meeting and continued disruption to refinery capacity linked to the Russia–Ukraine war.

“Geopolitical conflicts have caused severe negative supply shocks, which weaken output and raise inflation,” the Reserve Bank said in a statement posted on X.

The move marks a shift from July, when the MPC held rates at 7% on a 4-2 split, with two members having already favoured an increase at that meeting.

Consumer inflation rose only marginally, from 4.3% in July to 4.4% in August, according to law firm STBB, suggesting the decision was driven more by pre-emptive concern over imported price pressure than a sharp domestic inflation surprise.

Renewed upward pressure on fuel prices featured prominently in the committee's reasoning; despite petrol prices easing between June and August, an average under-recovery of R2.83 a litre points to fresh pump-price increases ahead.

The Reserve Bank cut its 2026 growth forecast to 1.2%, from 1.4%, while leaving its 2027 and 2028 projections unchanged at 1.7% and 1.9% respectively – underscoring the trade-off facing policymakers after the economy contracted in the second quarter.

The SARB now expects headline inflation to average 5% in the fourth quarter of 2026 and reach 5.3% in the first quarter of 2027, and said its own easing cycle is likely to be delayed until the second half of 2027.

The decision brings South Africa into step with a broader global tightening cycle following the European Central Bank raising its three key interest rates by 25 basis points on 10 September.

“These unanimous decisions to hike to 25bp might be the new fashion – first the Fed, now South Africa,” Charlie Robertson, global chief economist at Renaissance Capital, said on social media platform X.

For consumers, the increase means higher repayments on variable-rate home loans, vehicle finance, personal loans and credit-card debt, though savers could see improved returns on certain products.

Kganyago said future decisions remained data-dependent and were not pre-committed. The MPC's final meeting of 2026 is scheduled for 19 November.