South Africa’s central bank kept its benchmark interest rate unchanged on Thursday, warning that the war involving the United States, Israel and Iran is likely to push up inflation and justify a more cautious monetary stance.
The South African Reserve Bank (SARB) left its main lending rate, or repo rate, at 6.75 percent, in line with market expectations, as policymakers weighed the inflationary risks stemming from rising fuel costs and a weaker currency.
The decision by the bank’s Monetary Policy Committee was unanimous.
The move comes after a period in which inflation in Africa’s most industrialised economy had shown signs of easing, raising hopes that further interest rate cuts might be possible this year.
But the conflict in the Middle East has sharply altered that outlook, sending energy prices higher and complicating the policy path for central banks around the world.
“We warned of elevated risks, and we have been proceeding cautiously in our rate setting,” central bank governor Lesetja Kganyago said while announcing the decision.
“Now a crisis has hit, this prudent approach is proving appropriate,” he added.
South Africa’s inflation had slowed to the central bank’s 3 percent target in February, giving policymakers some room for optimism before the latest geopolitical shock.
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That progress is now expected to reverse, however, as higher global oil prices feed into domestic fuel costs and broader consumer prices.
The reserve bank said it now expects headline inflation to rise to around 4 percent in the near term, while fuel inflation is projected to exceed 18 percent in the second quarter.
That would mark a significant acceleration from recent levels and underscores how vulnerable import-dependent economies remain to global energy shocks.
For South Africa, the impact is particularly sensitive because higher fuel prices can quickly ripple through transport, food distribution and household costs, placing renewed pressure on consumers and businesses already facing sluggish economic conditions.
The inflation risk is also being amplified by exchange rate pressures.
The rand, like many emerging market currencies, has been exposed to global uncertainty and shifting investor sentiment as the Middle East conflict escalates.
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A weaker local currency makes imports more expensive, adding to inflationary pressures and narrowing the central bank’s room to support growth through lower borrowing costs.
Before the war, many economists had expected the SARB to continue gradually easing monetary policy this year as inflation moved closer to target and domestic demand remained subdued.
But those expectations have now largely been abandoned.
Kganyago said the central bank’s internal projection model now points to interest rates remaining unchanged for a longer period than previously anticipated, effectively delaying the rate cuts that had been expected earlier this year.
That marks a notable shift from the more accommodative outlook the bank had signalled in January, before the Middle East crisis disrupted global market assumptions.
The decision reflects the difficult balancing act facing South African policymakers.
On one hand, the economy remains under pressure from weak growth, high unemployment, electricity constraints and fragile consumer demand.
On the other, the central bank is determined to prevent a fresh inflation surge from becoming entrenched, especially if energy prices remain elevated for an extended period.
Analysts say the SARB is likely to remain highly data-dependent in the coming months, watching closely for the extent to which global oil prices, shipping disruptions and exchange rate weakness pass through into broader domestic inflation.
The bank’s caution also reflects a wider global shift.
Central banks from Europe to emerging markets have been forced to reassess interest rate trajectories as the conflict involving Iran threatens to prolong energy market instability and revive inflation concerns that had only recently begun to ease.
For South Africa, Thursday’s decision signals that monetary policy will remain tight until there is clearer evidence that the inflation shock from the conflict can be contained.
While holding rates may disappoint borrowers hoping for relief, the central bank appears to be prioritising stability over short-term support.
With the geopolitical outlook uncertain and fuel prices still under pressure, that caution is likely to remain the defining feature of South Africa’s monetary policy for now.
