SARB Rate Call Looms: Hold or Hike Again?

Bank of America has indicated that it anticipates the South African Reserve Bank (SARB) will raise interest rates during its upcoming July Monetary Policy Committee (MPC) meeting, a move the bank attributes to inflationary pressures that have been building in the economy.

Key Takeaways

• Rate hike expected, but not certain: Bank of America, Goldman Sachs, and SARB Governor Kganyago all point towards a 25 basis point hike at July’s MPC meeting, though Investec’s Annabel Bishop expects rates to stay unchanged, and Rusike himself flags a close 4-2 style vote as likely.
• Inflation is running hot and staying there: CPI is forecast to hit 4.7% in June before easing to 4.2% in July, well above the SARB’s new 3% target, with headline inflation expected to average 4.1% for 2026 and peak again at 4.7% in early 2027.
• The SARB moves to its own beat, not the Fed’s: despite the US Federal Reserve being expected to hike three times between September and December, Bank of America argues the SARB’s decisions are driven primarily by domestic inflation dynamics rather than mirroring US policy moves.

Bank Of America’s Inflation Forecasts

America’s second largest bank is projecting that the Consumer Price Index (CPI) will climb to 4.7% in June, before easing slightly to 4.2% in July, with the increase being attributed largely to rising fuel costs and rental price growth. This projected level would sit well above the SARB’s newly adjusted target of 3%.

Even though electricity tariffs have risen by 9%, Bank of America economist Tatonga Rusike is of the view that a softening in fuel inflation will assist in pulling headline CPI back down to 4.2%.

Medium Term Inflation Trajectory

Looking further ahead, Rusike anticipates that CPI will reach its highest point at 4.7% during the first quarter of 2027, before beginning to slow down once more thereafter. As a result of this trajectory, headline inflation is projected to average 4.1% across 2026 as a whole.

Bank of America has revised its medium term outlook accordingly, now expecting CPI to top out at 4.7% in the first quarter of 2027 before decelerating, with headline inflation for 2026 forecast to average 4.1%, a downward revision from the bank’s earlier estimate of 4.3%.

The bank has indicated that it expects headline inflation to persist above the SARB’s preferred upper limit, with both goods inflation and services inflation likely to remain above the top end of the central bank’s 3% to 4% tolerance band.

Bank of America also expects core inflation, which strips out volatile items such as food and fuel, to hold steady at 3.8% year on year in June, before climbing gradually towards approximately 4.0%, a shift that is expected to roughly coincide with the timing of the anticipated peak in headline inflation.

The Expected Rate Decision

Bank of America therefore expects the MPC to raise interest rates by 25 basis points at its July gathering, building on the increase to the repo rate to 7.0% that took place in May. Following this anticipated move, the MPC is then expected to pause any further tightening.

• Bank of America’s view: a 25 basis point hike is expected in July, followed by a pause
• Previous move: the repo rate was raised to 7.0% in May
• New inflation target: 3%, down from the previous target range

Rusike does not expect the decision to raise rates to be reached unanimously by all six members of the MPC, noting that the previous vote on the matter was split four to two. He anticipates that July’s meeting will once again present a closely contested choice between hiking and holding.

According to Rusike, the argument in favour of holding rates steady has gained some strength, given that oil prices have declined following the ceasefire reached in Iran in mid June.

Nonetheless, Bank of America still leans towards forecasting a hike, on the basis that inflation expectations have shifted upward and inflation continues to sit above the level the SARB is comfortable with.

Not Everyone Agrees On A Hike

Although Bank of America is forecasting a rate increase, this view is not shared universally across the financial services industry. Annabel Bishop, Chief Economist at Investec, holds the opposing view that the SARB will opt to leave the interest rate unchanged at its July meeting.

That said, a number of other economists have aligned themselves with Bank of America’s position.

Goldman Sachs is likewise forecasting a rate hike, while the Governor of the Reserve Bank, Lesetja Kganyago, has also given indications that further monetary tightening may be on the way, pointing to the recent uptick in inflation expectations as justification.

Institution / Individual	Expected Outcome
Bank of America	Hike of 25 basis points
Investec (Annabel Bishop)	Rate held steady
Goldman Sachs	Hike expected
SARB Governor Lesetja Kganyago	Has signalled further tightening

When several major banks and the central bank governor himself hint at a hike, markets tend to price this in ahead of time, which is why South African bond yields and the rand can sometimes move before the official announcement is even made.

Why South Africa Is Not Simply Following The United States

While interest rate movements in South Africa are frequently interpreted in relation to decisions made by the US Federal Reserve, Rusike takes the position that the SARB will chart its own course rather than mirroring the American central bank.

In theoretical terms, an increase in US interest rates would tend to strengthen the US dollar, as investment capital flows towards the world’s largest economy in search of better returns. In response to this, the SARB would typically be expected to raise its own rates to remain competitive.

Although Bank of America’s economists are forecasting that the Federal Reserve will implement increases of 75 basis points in total, historical patterns suggest there is little basis for assuming that the SARB will replicate these moves in lockstep.

Rusike explained that the wider lesson to be drawn from previous monetary policy cycles is that the SARB’s decisions are shaped chiefly by domestic inflation trends and local inflation expectations, rather than being dictated by the actions of the Federal Reserve.

The Federal Reserve’s Own Outlook

The Federal Reserve is broadly expected to raise interest rates on three separate occasions between September and December, following what has been an extended period during which rates were left unchanged.

Given that monetary policy in the United States plays such a significant role in shaping global financial conditions more broadly, there remains an open question as to whether the SARB will ultimately feel compelled to follow the Federal Reserve’s lead.

Bank of America’s own assessment is that the answer to this question is no. The bank acknowledges that a strong historical relationship does exist between the Fed funds rate and the SARB’s policy rate, yet this correlation conceals meaningful differences in both timing and scale between the two.

How The SARB’s Cycles Have Compared With The Fed’s

Rusike further noted that the pattern seen across recent cycles suggests that, while the two central banks frequently move in the same general direction, the SARB is under no obligation to replicate the Federal Reserve’s actions in a purely mechanical fashion.

• The SARB has historically tended to move ahead of the Federal Reserve, particularly during periods marked by inflationary pressure
• The SARB has also generally delivered a smaller cumulative degree of tightening across a full cycle compared with the Fed

Both central banks began cutting interest rates in September 2024, yet the two cutting cycles were not perfectly aligned from that point onward, with the SARB reducing rates by a cumulative 150 basis points compared with a reduction of 175 basis points by the Federal Reserve.

Conclusion

The balance of expert opinion leans towards the SARB raising its repo rate by 25 basis points at July’s MPC meeting, driven chiefly by inflation that continues to run above the central bank’s new 3% target rather than by any obligation to track the Federal Reserve’s own tightening path, though the outcome is far from a foregone conclusion given Investec’s dissenting view and the closely split vote Rusike expects among the MPC’s six members.