South Africa's Reserve Bank hikes repo rate 25bps to 7%, first increase since 2023, on Iran-war and El Nino risks

On May 28, 2026, the South African Reserve Bank's Monetary Policy Committee raised the repo rate by 25 basis points to 7%, effective May 29, 2026 — its first rate increase since 2023 and a move that lands squarely at the opening of the coverage window. Governor Lesetja Kganyago said four MPC members backed the hike while two preferred to hold. The committee acted because inflation risks had intensified and overlapping shocks could trigger second-round effects.

April 2026 headline CPI had jumped to 4.0% from 3.1% in March, with fuel inflation up 11.4% and services inflation at 4.6%. The SARB's revised forecast sees headline inflation averaging 4.4% in 2026 and 3.7% in 2027 before returning to the 3% target in 2028. The MPC weighed three risk scenarios: a prolonged Middle East/Iran conflict (pushing the inflation peak to ~5% via higher oil and food prices and a weaker rand); the possible emergence of El Nino bringing drought; and non-linear effects in which large shocks have outsized pass-through (a ~6% peak that could require three additional hikes).

The decision underscores how the Iran war's commodity-price channel is forcing tightening in emerging markets even where domestic demand is soft, and signals the SARB is willing to defend its lowered 3% target with further moves if shocks materialize.