The South African Reserve Bank (SARB) has raised the repo rate by 25 basis points to 7%, signalling concerns over a high-inflation, low-growth environment.

Governor Lesetja Kganyago outlined three key risk scenarios guiding the Monetary Policy Committee (MPC): a prolonged Middle East crisis pushing food and oil prices higher, a developing El Niño pattern causing potential droughts, and nonlinear effects where shocks amplify inflation and costs to consumers.All three scenarios point to higher inflation and lower economic growth.The MPC vote was split, with four members supporting the rate hike and two preferring no change, reflecting ongoing uncertainty.Economists noted that the increase will impact borrowing costs amid already slow growth and highlighted South Africa’s 32.9% unemployment, limiting workers’ bargaining power.

Analysts stressed the need for a cautious approach, balancing economic support with inflation containment, as second-round inflation effects are not yet fully evident.

Global central bank comparisons suggest that the SARB is acting prudently, remaining data-dependent while acknowledging persistent inflation risks from energy and fuel prices.

For households, the hike comes as fuel costs rise, but the repo rate remains relatively low historically, offering some relief for home loan affordability.