Bank of America sees two rate hikes for SA this year

Rising inflation risks from the Iran war-induced oil shock and the US Federal Reserve’s recent decision to raise borrowing costs have prompted Bank of America (BofA) to pencil in two more interest-rate increases by the South African Reserve Bank this year.

“We now expect two additional 25 basis point hikes, in September and November, taking the repo rate to a 7.5% peak,” Tatonga Rusike, BofA’s sub-Saharan Africa economist, wrote in a note.

Read: Fed raises rates, signals another hike as inflation persists

The forecast contrasts with those of other investment banks, including Morgan Stanley and Goldman Sachs Group Inc, which expect another single 25 basis-point increase in 2026.

Read: Morgan Stanley sees Sarb rate hike to keep inflation on 3% pathSarb

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Reserve Bank Governor Lesetja Kganyago will announce the interest-rate decision shortly after 3pm on Wednesday (23 September), with most economists in a Bloomberg survey expecting a quarter-point increase to 7.25%

Inflation

BofA, which had previously anticipated a single hike, also adjusted its inflation projections.

Although inflation expectations – used to guide policymakers on borrowing costs – came in softer, dipping to 3.8% in the third quarter from 3.9% previously, oil risks lie ahead, Rusike said.

Read: South African inflation expectations dip before rate call

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“In our previous note, we argued that inflation had likely peaked at 5%,” he said.

Since then, the US-Iran conflict has reescalated and oil prices have risen above $100 per barrel, materially changing the inflation outlook, he added.

“We now expect headline inflation to average 5% in the fourth quarter” and peak at 5.3% in the first quarter of next year.

The central bank’s easing cycle is also likely to be delayed to the second half of 2027, Rusike said.

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