The South African Reserve Bank has kept the repo rate unchanged at 6.75%, citing heightened global uncertainty following the outbreak of conflict in the Middle East and its impact on inflation and growth.

Reserve Bank Governor Lesetja Kganyago said leading central banks have generally kept rates unchanged as they wait for more information on the crisis, which is only a few weeks old.

“The coming months will be crucial for assessing the longer-term inflation consequences. Given current forecasts, we see inflation risks to the upside,” Kganyago said during a media briefing in Pretoria on Thursday.

“Against this backdrop, the committee decided to keep the policy rate unchanged at 6.75%. The decision was unanimous.”

The governor described the Middle East conflict as a clear supply shock, which raises prices whilst weakening demand. He said central banks should look through first-round effects, which cannot be stopped by interest rate changes, whilst remaining alert to second-round effects where an initial shock triggers broad price increases.

Economic performance

South Africa’s economy grew by 1.1% in 2025, rising further in the fourth quarter. Kganyago said this is better than recent years but still well below longer-run averages.

“We have been encouraged by green shoots such as rising confidence and stronger investment, but the ongoing war could interrupt the growth recovery,” he said.

The bank’s growth projections remain largely unchanged, with growth expected to rise to around 2%, though downside risks have emerged.

Inflation stood at 3% for February, with core inflation also at 3%, in line with the SARB target. Higher energy prices are expected to raise inflation in the near term, with headline inflation forecast to accelerate to around 4% and fuel inflation exceeding 18% for the second quarter.

Alternative scenarios

The Reserve Bank examined two alternative scenarios with more adverse assumptions than its baseline. The first assumes the conflict lasts another two months, with oil prices averaging nearly $100 per barrel and the rand about 5% weaker against the dollar.

The second scenario has the war lasting over a year, with oil prices staying above $100 per barrel and the rand 10% weaker.

ASLO READ: KPMG’s Frank Blackmore: Reserve Bank expected to hold rates in January, with cuts likely later in 2026

In both scenarios inflation is higher, exceeding 4% in the first version and 5% in the second. Both call for higher interest rates this year, with one hike in the first scenario and several more in the second.

Kganyago said South Africa has made important macroeconomic progress recently, with a lower inflation target, improved fiscal prospects and steadier growth.

“Prudent monetary policy will help sustain these gains, despite difficult global conditions. Further support would come from reaching a prudent public debt level, lowering administered price inflation, and continuing structural reforms that raise potential growth,” he said.

ALSO READ: SA Reserve Bank leaves key interest rates unchanged