By Mark Phillips, Head of Portfolio Management and Analytics at PPS Investments

The SARB’s Monetary Policy Committee raised the benchmark repo rate by 25 basis points to 7.00%, in line with the view of 15 of the 22 economists surveyed by Reuters. The decision was closely split, with four members voting for an increase and two preferring to keep rates unchanged.

Headline consumer inflation rose sharply to 4.0% in April from 3.1% in March, moving close to the upper end of the central bank’s revised 3% target range. The increase was driven entirely by external supply-side shocks, most notably the late-February Middle East conflict and the subsequent blockade of the Strait of Hormuz. These developments pushed local fuel prices up by 11% in April, lifting them to their highest level in nearly four years.

Historically, the SARB has tended to look through first-round supply shocks when food inflation is contained and domestic demand remains weak. In this case, however, Governor Kganyago indicated that the combination of risks was too significant to ignore. These included the possibility of a prolonged Middle East conflict, unpredictable consumer pass-through effects, and the emerging threat of an El Niño-related drought. Taken together, these risks increased the likelihood of second-round wage and price pressures, prompting the bank to act pre-emptively.

The impact of the shock was partly offset by improvements in domestic fundamentals. South Africa’s sovereign risk premium remained contained, fiscal conditions improved, and the rand showed notable resilience. Together, these factors helped restrain imported inflation and reduced the need for a more aggressive policy response.

For now, monetary easing appears unlikely. Policy is expected to remain firmly restrictive, and any additional tightening toward the end of 2026 will depend on whether higher transport costs feed through into broader, sustained price increases across the consumer basket.