Sarb holds rates steady at 7%

The South African Reserve Bank’s Monetary Policy Committee (MPC) left the repo rate unchanged at 7% on Thursday, in somewhat of a surprise move.

The MPC’s decision comes amid renewed inflationary pressure, with consumer inflation rising more sharply than anticipated to 5% in June, from 4.5% in May.

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This means SA’s prime lending rate remains at 10.50%.

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Despite the deterioration in the inflation outlook, the central bank adopted a measured stance, balancing its mandate to contain price pressures with the need to avoid placing further strain on South Africa’s fragile economic recovery.

Sarb governor Lesetja Kganyago said while the MPC “sees upside risks to inflation,” the committee decided to keep the policy rate unchanged, at 7%.

Four members of the MPC preferred a hold, while two favoured an increase of 25 basis points.

“The committee agreed that the outlook is uncertain, and with the rate increase at our previous meeting, the policy stance is appropriate for now, with rates somewhat restrictive,” he said.

“The forecast from our Quarterly Projection Model [QPM] shows the policy rate broadly stable through the remainder of the year. The model shows cuts later in the forecast, as inflation falls to 3% and rates adjust towards neutral levels,” he added.

Rates staying higher-for longer?

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“For expectations, after the upside surprise in the recent survey, we looked at what could happen if expectations keep on rising throughout this year. The scenario showed extra pressure on wages, which feeds through to core inflation. The model therefore sees tighter policy, with one more rate hike than the baseline forecast, and rates staying higher-for longer after that,” Kganyago said.

Commenting on the Sarb announcement, FNB chief economist Mamello Matikinca-Ngwenya, said the MPC’s decision to keep the repo rate unchanged reflected a careful balance between SA’s weak growth and inflation risks that have moderated since the previous meeting.

“Domestic activity remained subdued, with real GDP growth expected to improve only gradually from 1.1% in 2025 to around 1.2% in 2026, before strengthening to about towards 2.0% by 2028.” 

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