The South African Reserve Bank has raised the repo rate to 7% as surging oil prices and inflation force a major policy U-turn.
The era of falling interest rates in South Africa is officially over. The South African Reserve Bank has made a sharp U-turn, hiking rates after months of careful cuts aimed at boosting the economy.
On Thursday, the bank's Monetary Policy Committee raised the benchmark repo rate by 25 basis points. This pushes the repo rate up to 7 percent, while the prime lending rate now sits at 10.5 percent.
The decision was not unanimous. Four committee members voted for the hike, while two preferred to keep rates unchanged.
Just a few months ago, the economic outlook seemed bright. Inflation had slowed to the central bank's 3 percent target in February, and many expected more rate cuts this year.
But those hopes collapsed quickly. Consumer inflation jumped to 4 percent in April, up from 3.1 percent in March. This is the highest level since August 2024, hitting the very top of the bank's tolerance band.
Housing, utilities, and transport costs drove this sudden spike. Fuel prices alone surged by 11.4 percent, squeezing the average consumer.
SARB Governor Lesetja Kganyago did not mince words about the cause. He pointed straight at the ongoing Middle East crisis.
He noted that hopes for a quick end to the conflict have faded. The Strait of Hormuz remains largely closed, keeping oil prices fluctuating around 100 dollars per barrel.
A weaker rand has only made things worse. South Africans are now bracing for what could be the largest fuel price increase in history. Petrol is expected to rise by over R5 per litre, while diesel could soar by up to R10.
This shock is hitting the economy at a difficult time. While the economy grew by 1.1 percent in 2025, the SARB has now downgraded its growth forecasts for the next two years.
Kganyago warned that the country faces a painful mix of higher global uncertainty and reduced disposable income. This will directly hit the household consumption and investment that have been driving growth.
The most alarming part of the announcement is what might come next. The central bank explored three risk scenarios, and all of them pointed to more tightening.
If the Middle East crisis drags on, inflation could hit 5 percent, requiring two more rate hikes. Adding an El Niño drought into the mix would keep rates high for even longer.
In the worst-case scenario, where the conflict lasts over a year with massive energy damage, inflation could reach 5.53 percent in 2027. Under this dark picture, the policy rate could rocket to 8.17 percent by the end of 2026.
Financial experts saw this coming. Standard Bank noted that while core inflation was lower, surging fuel costs are already pushing up taxi fares and flight tickets.
Investec also predicted the move, noting that the SARB prefers to act early to stop inflation from taking root, just as it did during the Russia-Ukraine conflict.
For everyday South Africans, the hike brings immediate pain. A 25-basis-point increase adds roughly R165 a month to a R1 million home loan. It adds R330 to a R2 million bond.
This is a bitter pill for new homeowners, especially as house prices recently hit record highs. Many buyers entered the market expecting rates to keep falling.
South Africa is not suffering alone. The SARB's latest review shows the US-Iran conflict has interrupted global disinflation. Central banks around the world have halted their rate-cutting plans.
For now, the message from Pretoria is clear. The era of cheap money is on pause, and interest rates will stay elevated until the global storms settle.
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