South Africa's central bank nudges rates up again as inflation pressures linger

What changed and why it matters

South Africa's rate setters moved in lockstep, opting for a 25 basis point increase that lifted the benchmark to 7.25%. Announcing the call in Pretoria on Wednesday, Governor Lesetja Kganyago said, "We have taken a measured approach to rate setting, in conditions of high uncertainty, but we remain focused on our price stability mandate." He added, "It is crucial that inflation reverts to 3% as the current shock fades, and we take responsibility for delivering that outcome."

The tone skewed firm. Gina Schoeman, South Africa economist at Citigroup, called it a "relatively hawkish statement with a unanimous hike and emphasis on not only intensified supply side shocks from fuel but also concern about services inflation remaining high and sticky."

Inflation, oil and the new forecasts

Global currents are choppy. Brent crude has jumped about 37% this year, and ongoing conflicts in Ukraine and the Middle East are keeping energy costs elevated. At home, the annual rate reached 4.4% in August, up from 4.3% a month earlier.

Fresh projections show CPI averaging 4.4% this year, up from 4% previously. The SARB now sees inflation at 4% in 2027, compared with an earlier 3.8%. Oil assumptions were marked higher too: $80 a barrel for next year, versus $75 before, and $90 in 2026, up from $82. As Kganyago put it, "Our approach is to look through the initial effects of price shocks, while ensuring that they do not entrench higher inflation." He cautioned that "large and sustained shocks, like those we are experiencing now, more are likely to trigger second-round effects."

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How the committee weighed the risks

The MPC discussed standing pat as well as a 50 basis point move. Kganyago said policy was marginally restrictive before the decision and that the committee chose to add another quarter point. The team also examined risk cases. In scenarios with higher global rates and a rise in South African inflation expectations, the policy rate path would be lifted by one or two additional moves beyond the baseline.

"It is clear that there were enough arguments to keep rates unchanged," remarked Johann Els, chief economist at PSG. "But it seems the concern that the shock has been sustained for so long, and could therefore push up inflation expectations, was the overriding factor."

Markets and what to watch next

The outcome lined up with 19 of 22 economists surveyed by Bloomberg, with three expecting no change.

Big picture, the move slots into a broader tightening cycle after recent actions by the Federal Reserve, European Central Bank and Bank of Japan. For your wallet, the SARB's higher oil deck and firmer inflation view suggest borrowing costs could stay tighter than previously thought, which is already showing up in the currency and bond market. Keep an eye on services inflation and oil prices. If they stay sticky, so could rates.

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