NextFin News - South Africa’s central bank said on June 10 that another interest-rate increase could be warranted this year because of the fallout from the Iran war, reversing its earlier 2026 view that cuts were likely.
In its biannual Financial Stability Review released in Pretoria, the South African Reserve Bank said its Quarterly Projection Model, which had pointed to rate cuts before the Middle East conflict, now suggests another rate increase in 2026 after the bank’s 25-basis-point hike on May 28. The change shifts the direction of the SARB’s own forecast within a single quarterly cycle.
The bank is not saying another hike is certain. It is saying the balance of risks has shifted enough that its model now points to tighter policy rather than easier policy.
The immediate driver is the Iran war’s effect on oil prices, shipping routes and risk sentiment, all of which can raise South Africa’s import bill. For an economy that depends heavily on fuel and energy imports, a sustained increase in crude costs can feed through to transport, food and manufactured goods. That makes the SARB’s effort to bring inflation down harder even if domestic demand stays weak.
Reuters reported on June 10 that the rand was steady in early trade, but markets remained tense over the latest U.S.-Iran clashes and were waiting for U.S. inflation data. That points to how much South Africa’s currency and inflation outlook is being shaped by developments far beyond Pretoria.
The SARB’s June 10 message needs to be read as a model-based scenario, not a firm commitment. The inflation path will depend on more than oil prices: whether the rand weakens, how quickly food and transport costs respond, and whether the conflict remains contained or turns into a longer regional shock. Before the Middle East conflict, the bank’s model pointed to rate cuts in 2026. After the May 28 increase, it now points to another increase instead.
The May 28 move set the backdrop for that warning. The SARB raised the key rate by 25 basis points to 7% in what Reuters described as its first hike in three meetings, and it raised its inflation forecast at the same time. That suggests the bank would rather respond early than wait for imported inflation to appear fully in the consumer price index. The approach fits the SARB’s long-standing focus on protecting inflation credibility even when growth is soft and tighter policy is politically difficult.
Governor Lesetja Kganyago has long favored that conservative, inflation-first stance. He has argued over the years that weak policy credibility ultimately hurts South Africa more than short-term tightening does. That helps explain why the bank is warning now about a possible additional hike rather than waiting for a larger move later if the war-driven shock proves persistent.
Still, the case for another increase is not straightforward. South Africa’s growth remains fragile, and higher rates would put more strain on households already dealing with elevated debt-service costs and uneven job creation. The move to 7% in May came while inflation expectations were still manageable, leaving the central bank room to pause if oil prices stabilize or if the rand absorbs the shock without a larger pass-through.
This differs from older rate cycles driven mainly by domestic demand or wage pressure. The transmission this time is external. If crude prices remain high, South Africa’s import costs rise. But if global growth weakens at the same time, local demand could soften further and offset part of the inflation effect. The SARB then has to decide whether to look through a temporary price jump or respond before expectations rise, a choice central banks often resolve in favor of tightening when the currency is vulnerable.
For investors, that means a less certain policy path. Those expecting a gradual easing cycle in the second half of 2026 now have to consider several outcomes: a pause, a possible second hike, or a return to cuts only if the conflict fades and inflation remains contained. That leaves rate-sensitive sectors, and consumers financing mortgages, cars and other debt, facing still-high real borrowing costs.
The clearest new fact is the SARB’s revised forecast: a model that once pointed to cuts now points to another hike after a 25-basis-point increase on May 28, because of the war.
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