The South African Reserve Bank (SARB) has raised its main policy interest rate by 25 basis points to 7%, citing increasing inflation risks driven largely by global oil price volatility and rising food costs.The decision was announced following the Monetary Policy Committee (MPC) meeting held on Thursday, with the new rate taking effect from 29 May.

SARB Governor Lesetja Kganyago explained that geopolitical tensions in the Middle East, particularly disruptions affecting oil flows through the Strait of Hormuz, have contributed to sustained higher crude oil prices, which are fluctuating around the $100 per barrel mark.These energy pressures have led to downward revisions in global growth forecasts while pushing inflation expectations higher.

Domestically, the Reserve Bank also highlighted renewed pressure on food prices, with farmers facing increased input costs such as diesel and fertiliser.

These cost increases are expected to feed into broader inflation, raising concerns about second-round effects as higher prices begin to influence wages and inflation expectations across the economy.The SARB now projects headline inflation to average 4.4% in 2026 and ease to 3.7% in 2027, before returning to the 3% target by 2028.Core inflation is also expected to remain elevated, peaking early next year.

Despite these inflationary pressures, the central bank acknowledged downside risks to economic growth, although it noted that South Africa’s macroeconomic fundamentals remain resilient, supported in part by a positive sovereign outlook from Moody’s.The MPC decision was not unanimous, with four members voting in favour of the hike and two preferring to keep the rate unchanged at 6.75%.

The Bank emphasised that the rate increase is aimed at anchoring inflation expectations and ensuring long-term price stability in a challenging global environment.Overall, the move reflects a cautious stance as policymakers balance persistent inflation risks against fragile economic growth conditions.