By Lehlohonolo Lehana.
The South African Reserve Bank left interest rates unchanged on Thursday, opting to hold the repo rate at 7%, with the prime lending rate remaining at 10.5%.
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.
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.
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 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.
“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.
“Recent volatility in oil prices show that we face both upside and downside risks, depending on how the Middle East conflict evolves.”
“We therefore considered an adverse case, with oil at $100 a barrel for 2026, easing slowly to $80 by 2029. That was paired with a positive scenario, where oil is $78 this year, falling to $60 by 2029,” he added.
Commentary
Reserve Bank’s decision to leave interest rates unchanged will provide welcome relief for homeowners and prospective buyers, says Standard Bank Head of Home Services, Toni Anderson. She adds that the decision gives consumers greater certainty at a time when many households continue to manage ongoing cost-of-living pressures.
“After some uncertainty around the interest rate outlook after the 25-basis points hike in May, a hold provides welcome relief for homeowners and aspiring buyers. It means monthly home loan repayments remain unchanged and gives those looking to buy new homes more confidence in their planning,” says Anderson.
Even though consumer inflation jumped to a two-year high in June, driven by fuel prices, Standard Bank still expected the Monetary Policy Committee to keep rates unchanged in July, because of easing food inflation. “Against that backdrop, today’s decision provides the relief and certainty many homeowners and prospective buyers were hoping for. This hold should support positive momentum in the property market because stable borrowing costs help buyers make purchasing decisions with greater certainty,” says Anderson.
She adds that affordability remains one of the key drivers of activity in the residential property market. The lower interest rate environment in the past two years benefitted many buyers, and not hiking the rates again this time helps preserve those gains.
Anderson says the decision is likely to be welcomed by both homeowners and sellers. “We expect continued interest from homebuyers, particularly in the affordable and first-time buyer segments of the market,” she concludes.
Frank Blackmore, Lead Economist at KPMG said, a key factor underpinning the decision was that both current inflation readings and inflation forecasts over the next year and beyond remain broadly in line with the Reserve Bank’s expectations and forecasting models. As a result, the MPC concluded that there was no need for additional monetary policy intervention at this stage.
Hayley Parry Money Coach at 1Life’s Truth about money said, “My advice, as always, is to use this opportunity proactively. Consider setting aside additional money into your emergency savings fund if it is not yet fully established. Alternatively, focus on paying down high-interest debt. Taking these steps now can help strengthen your financial position and provide a valuable buffer against future uncertainty.
There is no guarantee that this marks the beginning of a longer-term trend. Rather than viewing the rate hold as a reason to become complacent, consumers should see it as an opportunity to get ahead financially. While the pause provides some short-term relief, it remains entirely possible that we could see further interest rate increases later in the year.
The key takeaway is simple: use this period wisely. The more you can improve your financial resilience now, the better prepared you will be for whatever challenges may lie ahead.