The South African Reserve Bank (Sarb) has increased the repo rate by 25 basis points to 7%, resulting in the prime lending rate rising to 10.5%.Reserve Bank Governor Lesetja Kganyago announced the decision following the latest Monetary Policy Committee (MPC) meeting, citing growing inflation risks linked to the ongoing Middle East conflict and disruptions in global oil markets.

According to Kganyago, the prolonged closure of the Strait of Hormuz has kept oil prices around 100 US dollars per barrel, placing upward pressure on global inflation and weakening growth forecasts worldwide.Kganyago said higher energy prices were already affecting consumers internationally, with inflation in the United States reaching 3.8% in April and eurozone inflation at 3%.In South Africa, inflation rose to 4% in April from 3.1% previously, mainly because of sharp increases in fuel prices.Fuel inflation climbed by 11.4% after a significant decline in March, marking one of the largest increases on record.The Reserve Bank now expects headline inflation to average 4.4% in 2026 and 3.7% in 2027 before gradually returning to its 3% target by 2028.The MPC warned that rising fuel and food prices could lead to broader inflationary pressures through wage increases and higher consumer costs.

Although economic growth forecasts have been revised lower, the central bank stressed the importance of maintaining price stability and protecting its credibility.The MPC’s forecasting model suggests there could be another rate hike later this quarter before rates begin easing once inflation pressures moderate.Kganyago added that future decisions would remain dependent on incoming economic data and developments in global markets.