It is a tough week to be a central bank governor. Forces outside your control are conspiring to complicate your decisions, with competing pressures pulling in opposite directions.  The first missile fired on 28 February 2026 at Iran, rearranged the entire board and massively complicated the upcoming rate path.

At the start of the year, markets were pricing in two to four rate cuts over the next 18 months. Inflation appeared firmly under control, with most forecasts converging on 3% by end-2027, and the global backdrop was broadly supportive for South Africa. As recently as 25 February, that picture held. In less than a month, almost everything has changed as the war in Iran has upended nearly every outlook.

The most disruptive factor is the price and availability of energy. At time of writing, Brent Crude stands at $113 per barrel and the Rand trades at R17.20 to the dollar, putting the Rand price of a barrel of oil more than 90% higher than at the start of the year. Price is not the only concern: if the crisis persists, domestic fuel availability could also become a problem. South Africa's strategic petroleum reserves currently stand at 7.7–8 million barrels, far below its 45-million-barrel capacity, having never recovered from the 2016 reserve sales that the High Court later ruled to be corruption.

This vulnerability is compounded by the sharp decline in domestic refining capacity, which has fallen roughly 50% since 2010, from 703,000 barrels per day to 357,000. The country is now unfortunately far more dependent on imports of refined fuel and less able to absorb disruptions in supply and shipping.

Local cost pressures add to an already difficult inflation environment. NERSA has approved electricity tariff increases of 8.76% for direct customers and 9.01% for municipalities. Many municipalities are also raising fixed charges, contributing to growing "bill shock" among consumers. Water tariffs are up 11% in Mangaung and 13.9% in Johannesburg, while Cape Town property rates have risen 7.96%. On the labour front, Eskom workers are currently demanding a 12% wage increase and the minimum wage is up 5% from 1 March.

Food and fuel are the two most significant near-term drivers of inflation energy costs affect fuel prices at multiple points in the production process.  South Africa imports more than 80% of its fertiliser, leaving it highly exposed to global price disruptions. Fertiliser production is also energy-intensive, relying heavily on gas and ammonia, so higher gas, oil, and freight costs feed quickly into local prices. Supply-chain risk is a further concern: between 30% and 75% of South Africa's various fertiliser inputs come from Gulf states, primarily Saudi Arabia, Oman, and Qatar.

The growth outlook has also dimmed. Gold is down more than 20% from its peak. Tourism is likely to soften as airfares rise and key hub routes face disruption.  And agricultural output will be pressured by higher energy and fertiliser costs.

The cumulative effect on the interest rate outlook has been striking. The three-month forward rate starting a year from now has moved from pricing in three cuts (6.07%) to pricing in four hikes (7.90%), a shift of over 180 basis points since 17 February.

All of this leaves Governor Lesetja Kganyago navigating a far more treacherous environment than he faced just weeks ago.  On Thursday 26 March he will have to make a decision, but a few outcomes seem likely. First, the near-term inflation forecast will be revised upward, even as the projection for end-2027 probably remains close to the 3% target. Second, growth expectations will be lowered, weighed down by energy and fertiliser costs and by broader economic uncertainty. Third, rates will likely be left unchanged at this meeting: the crisis could unwind as quickly as it escalated and most central banks remain in wait-and-see mode.

With inflation currently hovering at 3%, things are under control.  The governor in being conservative in the last couple of meetings and pausing now, is buying himself time. However, uncertainty is the defining condition of our outlook, a hallmark of the second Trump term, and South Africa must unfortunately watch and absorb the consequences of events unfolding in the Middle East.

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