By Lehlohonolo Lehana.
The South African Reserve Bank’s Monetary Policy Committee (MPC) has increased interest rates by 25 basis points, taking repo rate to 7.0%, with the prime rate rising to 10.50% on Thursday, 28 May 2026.
The move comes amid growing inflation risks linked to persistently high oil prices and the ongoing conflict in the Middle East, which have pushed up fuel costs and heightened concerns about broader price pressures feeding through the economy.
The majority of economists had expected a 25-basis-point increase in the policy rate, after inflation accelerated sharply in April.
Annual inflation was 4.0% in April, up from 3.1% in March, driven mainly by fuel price rises triggered by the US-Israel war against Iran.
The MPC’s decision aligns with expectations from several economists and market participants, who argued that the central bank would act pre-emptively to contain inflation expectations and limit the risk of second-round effects.
Sarb governor Lesetja Kganyago said during the announcement that four committee members favoured a rate hike, while two preferred no change.
Asked whether a 50 basis point hike had been on the table, Kganyago said it had featured in a robust discussion.
“The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second round effects, requiring a monetary policy response. Our decision was aimed at managing risks and ensuring that inflation returns to target,” he added.
For this meeting, the MPC explored three risks. The first was a prolonged Middle East crisis, which would result in higher food and oil prices, as well as a weaker rand.
The second incorporated El Niño, a weather pattern that appears to be forming and typically brings drought to parts of South Africa.
The third added so-called “non-linear effects” – the risk that large shocks could have disproportionately bigger effects on inflation, with more costs passed on to consumers.
According to the Quarterly Projection Model, all these scenarios imply higher inflation and weaker growth. Policy would therefore need to strike a balance between supporting economic activity and guiding inflation back to target over time.
To achieve this, all the scenarios pointed to some additional monetary policy tightening, Kganyago said.
Under the scenario of a prolonged closure of the Strait of Hormuz, inflation would rise to about 5%, requiring two more rate hikes than the baseline. With El Niño added, rates would remain higher for longer. The most adverse scenario combined all these risks, causing inflation to a peak above 6% and requiring three extra hikes, he said.
According to Jurgen Eckmann, Wealth Manager at Consult by Momentum, the decision reflects a Reserve Bank determined to defend the country’s new 3% inflation target framework.
“Today’s hike reflects that the bank is serious about defending its new 3% inflation target. Aprils CPI print of 4% – the highest in 19 months – pushed inflation to the upper edge of the Bank’s tolerance band, driven largely by fuel-price pressures linked to global supply disruption. The Monetary Policy Committee’s role is not necessarily to react to the shock itself, but to prevent second-round effects from becoming embedded into wages, rents and wider pricing behaviour,” he says.
While the increase may appear relatively modest in isolation, Eckmann notes that its impact compounds over time for heavily indebted households. “For every R300,000 of a vehicle loan at prime, a 25 basis point hike adds roughly R37 a month to repayments.”
However, he says the most severe financial strain is often not found in vehicle or mortgage debt, but in unsecured lending. “If you are carrying credit card debt at the typical 18% interest rate, the hike itself only adds around R6 a month per R30,000 of balance. But that is not really the story – the real issue is that consumers are already paying approximately R5,400 a year in interest on that R30,000 simply to stand still.”