Pretoria: The South African Reserve Bank (SARB) has decided to maintain the repo rate at 6.75%, citing the ongoing conflict in the Middle East and its potential impact on inflation and economic growth.
According to South African Government News Agency, Reserve Bank Governor Lesetja Kganyago highlighted that major central banks are holding steady on interest rates as they monitor the situation closely. "The fact is, we are still only a few weeks into this crisis. The coming months will be crucial for assessing the longer-term inflation consequences. Given current forecasts, we see inflation risks to the upside," Kganyago stated during a media briefing in Pretoria.
The Governor emphasized that the conflict represents a supply shock, which typically raises prices while weakening demand. He explained that central banks need to distinguish between initial supply shock effects and potential broader price increases. "Getting policy right means ensuring that the price response to supply shocks is transitory, and not persistent," Kganyago added.
South Africa's economy showed growth in the fourth quarter of 2025, with an annual output increase of 1.1%. Despite this improvement, Kganyago noted that the ongoing conflict could disrupt the economic recovery. "For the time being, our growth projections are largely unchanged. We still have growth rising to around 2% over the next few years, but we now see downside risks to the outlook," he said.
Inflation stood at 3.0% in February, aligning with the SARB's target. However, Kganyago warned of higher energy prices impacting inflation in the short term, with headline inflation expected to rise to around 4%. He outlined two scenarios considering the conflict's duration and its economic effects, both leading to higher inflation and potential interest rate hikes.
In both scenarios, growth is initially weaker, with some recovery expected later. Kganyago pointed out South Africa's recent macroeconomic progress and stressed the importance of prudent monetary policy to sustain these gains. "Further support would come from reaching a prudent public debt level, lowering administered price inflation, and continuing structural reforms that raise potential growth," Kganyago concluded.