The South African Reserve Bank (SARB) has raised the repo rate by 25 basis points to 7.25%, in line with The Common Sense’s expectation, as inflation remains above the Bank’s 3% target and higher global interest rates create renewed risks for the rand.

Earlier today, ahead of the Reserve Bank decision, Statistics South Africa (Stats SA) released its August inflation figures. Annual headline inflation came in at 4.4%, up slightly from 4.3% in July and remaining well above the Reserve Bank’s target.

The Reserve Bank expects inflation risks to worsen in the months ahead. Governor Lesetja Kganyago said higher fuel prices had pushed up the bank’s near-term inflation forecasts. “Headline inflation will likely be above 5% later this year and early next year, before slowing as the fuel shock recedes,” he said. He also said, “We currently expect inflation to be back around 3% towards the end of 2027.”

Another important signal came from the Reserve Bank’s assessment of global interest rates and what they could mean for South Africa.

The Bank said more major central banks were raising rates, while longer-term borrowing costs had also moved higher. Its baseline forecast assumes major central banks raise rates by about half a percentage point between now and the end of 2027.

Bheki Mahlobo, in-house economist at The Common Sense, said the statement signals another 25-basis point increase before the end of 2026.

“Higher global interest rates, particularly from the United States Federal Reserve, which also seeks to reach its inflation target of 2% compared to its August inflation rate of 3.4%, will put pressure on the rand at the same time that inflation remains well above the Reserve Bank’s 3% target. Consequently, the SARB will seek to defend the rand, because a weaker currency raises input costs and feeds through into higher inflation. We think that leaves room for another 25-basis point hike before the end of the year,” Mahlobo said.

Mahlobo further added,“As the SARB expects South Africa’s headline inflation to reach 3% by the end of 2027, it means South African interest rates will be held higher for longer, with further hikes possible until the bank reaches its inflation target next year.”

Another increase would take the repo rate to 7.50%.