ECONOMIC WEEK AHEAD: Reserve Bank faces tough call on rates amid inflation fears

The South African Reserve Bank has a tough call to make on interest rates this Wednesday, balancing consumer inflation that remains far above target against a struggling economy that would be hurt by a further reduction in consumer demand if monetary policy were to get more restrictive.

The Reserve Bank, which kept its benchmark policy rate steady at 7% in July after hiking it by 25 basis points in May due to inflationary pressure from oil prices, has vowed to remain vigilant against second-round effects from the global oil price shock triggered by the US war against Iran.

The Bank’s monetary policy committee (MPC), chaired by governor Lesetja Kganyago, usually announces its rate decision on a Thursday but will bring this week’s announcement a day forward due to the September 24 Heritage Day public holiday.

Read: Inflation expectations ease despite continued Middle East tensions

It will come just a few hours after Stats SA releases its August consumer inflation release, but the Reserve Bank has previously made clear it is not overly swayed by current inflation data when setting interest rates, preferring to take a forward-looking view of where inflation is heading over the next 12–24 months.

It will therefore closely consider last week’s Bureau for Economic Research (BER) report which showed inflation expectations moderated in the third quarter of 2026 despite a backdrop of continued geopolitical tensions in the Middle East which have disrupted oil supply through the Strait of Hormuz and kept global oil prices high, translating to steep domestic fuel price increases .

On average, expectations among analysts, businesspeople and trade union officials for headline consumer inflation in 2026 were unchanged at 4.4%, but eased to 4% from 4.2% for 2027 and to 3.8% from 3.9% for 2028, the survey showed. Household forecasts declined sharply, with 12-month expectations falling to 4.9% — their lowest level in nearly five years — from 6%.

That said, the BER survey, commissioned by the Reserve Bank, shows that inflation expectations remain significantly above its 3% target.

Further complicating Wednesday’s rates decision is the fact that the economy contracted by 0.2% in the second quarter of the year, backing the argument to keep rates on hold for now and offer some relief to consumers.

“In another very tight decision, our base case is that the Reserve Bank holds rates steady, but it is effectively a coin toss and will depend on whether the MPC is willing to look through some of the shorter-term inflation dynamics,” CAM Asset Management portfolio manager Mike van der Westhuizen said.

“Based on short-term dynamics alone and where the consumer price index currently sits relative to the 3% target, one could easily argue for a 25-basis-point rate hike.