South Africa Holds Interest Rate at 6.75% Amid Rising Inflation Risks from Iran Conflict
South Africa’s central bank has decided to maintain its policy rate at 6.75%, signaling caution as global energy shocks linked to the U.S.-Israel conflict with Iran threaten to push inflation higher. The South African Reserve Bank (SARB) announced the move on Thursday, highlighting the potential impact of rising fuel prices and a weakening rand on the local economy.
The decision comes after months of relatively stable inflation, with the rate falling to the SARB’s 3% target in February 2026. However, the central bank now expects inflation to accelerate in the coming months, driven by higher fuel costs and continued global uncertainty. Fuel inflation alone is projected to exceed 18% in the second quarter.
Governor Lesetja Kganyago emphasized the need for a cautious approach, noting that the central bank had anticipated elevated risks. “We warned of elevated risks, and we have been proceeding cautiously in our rate setting,” he said. The SARB’s projection model indicates that interest rates are likely to remain unchanged for a longer period, postponing previously considered rate cuts.
Before the outbreak of the conflict, economists had expected the SARB to ease rates further as inflation pressures appeared under control. But as South Africa is a net fuel importer, global energy price spikes have made the country particularly vulnerable, while the rand has dropped over 6% against the U.S. dollar since the crisis began. The central bank has modeled both short-term and long-term conflict scenarios, all pointing to inflation remaining above the 3% target.
Despite these challenges, the SARB has kept its economic growth forecasts steady at 1.4% for 2024 and 1.9% for 2025. While South Africa has returned to its target-level inflation, other African economies face continued pressure—Nigeria’s headline inflation, for instance, remained elevated at 15.06% in February. Policymakers remain watchful, balancing the risks of global shocks with domestic economic stability.
source: nairametrics