The South African Reserve Bank (SARB) kept interest rates steady at 6.75% yesterday as predicted by The Common Sense, following the lead of global central banks such as the United States Federal Reserve, which made a similar decision last Wednesday.

South Africa’s headline inflation eased to the SARB’s target of 3.0% in February, down from 3.5% in January. This would typically provide room for the bank to cut interest rates, but the tone set by Governor Lesetja Kganyago was hawkish compared to January’s monetary policy committee meeting, as the ongoing war in Iran has seen South Africa’s inflationary outlook deteriorate.

The war has seen the Brent crude oil price trade above $100 per barrel, compared to levels below $70 at the end of February, and has led to a weakening of the rand over the past month to over R17.00 from about R15.90 against the dollar at the end of February, increasing South Africa’s import costs.

The Governor stated: “Higher energy prices will raise inflation in the near term. We expect the headline inflation rate will soon accelerate to around 4%, with fuel inflation exceeding 18% for the second quarter.” He further added: “Our baseline forecast then has a gradual unwinding of the shock, bringing inflation back to 3% late next year.”

This signals that the SARB will maintain its cautious stance until inflation risks ease.