Investing.com -- South Africa’s central bank governor Lesetja Kganyago said on Tuesday that the bank would bring inflation back to its 3% target, defending last week’s rate hike as necessary to prevent second-round effects from the Middle East oil shock from becoming entrenched.
The South African Reserve Bank raised its key repo rate by 25 basis points last Thursday to 7%, with four out of six Monetary Policy Committee members backing the decision.
South Africa’s inflation climbed to 4% in April from 3.1% in March, sitting at the upper end of the central bank’s target range. The SARB, which targets inflation at 3% with a 1-percentage-point tolerance band, raised its inflation forecasts to 4.4% and 3.7% for 2026 and 2027 respectively.
Africa’s most industrialized economy is a net oil importer and has seen large price hikes on the back of the Iran war, which has pushed inflation higher, despite a modest government intervention on the fuel levy to cushion the full effect of the price increases.
The governor said second-round effects from the oil shock, including spillovers to food prices from higher diesel and fertilizer costs, were developing and needed to be tackled. The bank is projecting core inflation of around 4% in the first half of next year.
Kganyago warned that inflation expectations could quickly edge higher as price setters have a fresh memory of elevated inflation, adding that raising rates now was a move to counter that risk.
"By changing rates, we hope to send a clear and credible signal that we will keep inflation under control," Kganyago said in a speech to economists in Johannesburg, warning that the bank would not allow a price spiral to take hold at the expense of the most vulnerable.
Kganyago firmly ruled out reverting to the old 3-6% inflation target band. The next inflation expectation survey will be released at the end of June.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
The best investments start with better data. Going with your gut has its place, but when excitement masquerades as intuition, it can lead to costly mistakes—or analysis paralysis. InvestingPro combines institutional-grade data with AI-powered insights that you don't need a finance PhD to understand. It won't guarantee winners, but it will certainly help you find more of them, more often. So what are the best investments of 2026 so far?