By Reza Hendickse, Portfolio Manager at PPS Investments

The SARB's Monetary Policy Committee kept the repo rate unchanged at 7.00% at today's meeting, contrary to market expectations of a hike. The vote was again closely split, with four members preferring to hold and two favouring an increase. Governor Kganyago described the stance as "somewhat restrictive" and appropriate for now, given the hike delivered at the previous meeting.

The Middle East conflict remains the dominant swing factor. The Governor noted the crisis has entered "a new and volatile phase," with Strait of Hormuz traffic picking up and then falling away again, and Brent crude rebounding after dipping to roughly 70 earlier in the month. Global growth and inflation forecasts are largely unchanged since May, and the Bank's own oil price assumptions were still revised down across the forecast horizon, even as spot prices proved more volatile in the interim.

Domestically, the growth picture is more mixed than the headline suggests. First-quarter GDP surprised to the upside at 1.9% year-on-year, but this reflected stronger net exports rather than domestic demand, and the Bank expects growth to slow through the second and third quarters. Consumer and business confidence have both weakened since the war began, and the Bank was candid in flagging municipal dysfunction as an increasingly binding constraint on growth. The balance of risk to growth appears skewed to the downside.

The inflation narrative remains fuel-led but is broadening at the margin. Headline inflation is expected to stay above 4% until early 2027, and while the pump price eased in July, the subsequent rebound in global oil prices threatens to reverse that relief. More notable is the breadth of pressure beneath the surface: services inflation is now elevated across insurance, transport and housing, and every underlying measure the Bank tracks is trending higher and sitting above 3%. Inflation expectations have also risen, most sharply among trade unions, though market break-evens have eased somewhat since May. Food inflation continues to provide relief, with El Niño flagged as a 2027 risk rather than part of the baseline. The balance of risk to inflation is skewed to the upside.

The Bank's scenario analysis leans hawkish at the margin, with both a drifting-expectations case and an adverse oil case implying an additional hike versus the baseline. Tellingly, the QPM's baseline repo path was revised marginally higher across the horizon versus May, even as the 2026 headline CPI forecast was cut, suggesting the model weighs underlying inflation risk more heavily than the improved headline number alone implies.

Taken together, this looks like a pause rather than a pivot away from a hawkish bias. The Bank has held rates while flagging that inflation is still too high, that risks remain skewed higher, and that its own forecast keeps the rate broadly stable through year-end, with cuts only arriving once inflation is convincingly back near 3%.