What Could Stop the SARB From Hiking Interest Rates in 2026

The South African Reserve Bank (SARB) may choose not to increase interest rates in South Africa should the ongoing conflict involving Iran prove to be short-lived and its economic ripple effects remain contained. This decision carries significant weight for millions of South African households and businesses that are closely watching borrowing costs.

Key Takeaways

• War derails rate cut plans: The SARB entered 2026 widely expected to cut interest rates by 50 basis points, but the outbreak of conflict in Iran has completely reversed that outlook, with a rate hike now on the table.
• Repo rate decision is on a knife’s edge: The central bank must now choose between holding the repo rate steady at 6.75% or increasing it, a decision that will directly affect borrowing costs for South African households and businesses.
• Duration of the conflict is everything: The single biggest factor determining South Africa’s interest rate path is not domestic economic data, but how long the war in Iran lasts and how severely it disrupts global oil prices and the rand.

War in Iran Forces SARB to Rethink Rate Cut Plans

At the beginning of 2026, the SARB was broadly anticipated by economists and market analysts to implement a cumulative reduction of 50 basis points across its scheduled meetings. However, the outbreak of war in Iran fundamentally altered that outlook and forced policymakers to reassess their trajectory.

Following the military strikes launched by the United States and Israel against Iran in March, the central bank now finds itself at a crossroads – the decision has narrowed down to whether the SARB will hold the repo rate steady at 6.75% or move to increase it in response to mounting external pressures.

Inflation Was Under Control – Until the War

The conflict arrives at a particularly unfortunate moment for South Africa’s economic recovery, with inflation having only recently settled near or at the Reserve Bank’s revised target of 3.0%. The timing could not be more challenging for monetary policymakers.

The most recent Consumer Price Index (CPI) reading for March 2026 came in at 3.1%, representing a marginal uptick from the 3.0% figure recorded in February.

Despite the slight month-on-month increase, the March figure still falls comfortably within the SARB’s tolerance band, which permits fluctuations of 1 percentage point in either direction – meaning inflation between 2% and 4% remains acceptable under current policy parameters.

However, Dr Elna Moolman, Standard Bank Group Head of South Africa Macroeconomic Research, cautioned that the March data does not yet capture the full inflationary impact of the Iran conflict, and that the picture will worsen in the months ahead.

How the War Pushed Fuel Prices Higher

The war directly triggered a dramatic surge in fuel prices across South Africa, as global oil prices escalated sharply following the closure of the Strait of Hormuz – one of the world’s most strategically critical shipping routes.

At the start of April, fuel prices across South Africa jumped substantially, with petrol increasing by R3 per litre and diesel rising by as much as R7 per litre. This occurred despite the government stepping in to cushion the blow by reducing the fuel levy by R3. Without that intervention, the increases would have been considerably steeper.

The April CPI data will therefore reflect the true and full extent of these fuel price increases, and economists broadly expect the headline inflation figure to tick upward noticeably when that data is released.

What to Expect from Interest Rates

Dr Moolman noted that the SARB may interpret rising rental inflation as a signal of a recovering housing market and strengthening consumer demand, which could itself add to inflationary pressures the bank needs to manage.

Nevertheless, she was clear that the bank’s interest rate decisions over the foreseeable future will largely hinge on how events in Iran unfold and the degree to which those developments continue to affect both global oil prices and the rand/dollar exchange rate – two variables that are central to South Africa’s inflation outlook.

Dr Moolman stated that the SARB will remain committed to achieving its new 3% inflation target, but that if the war concludes relatively soon, the bank may ultimately not need to resort to hiking interest rates at all.

The SARB’s Three Scenarios

The Reserve Bank’s own baseline projection anticipates that inflation will tick upward in the near term, but will remain within the 1 percentage point tolerance band, peaking at around 4% before easing back toward target.

The SARB has modelled three distinct economic scenarios based on the severity and duration of the conflict:

• Baseline scenario – Global oil prices average a higher 78 per barrel in 2026 but begin easing, falling to $68 per barrel in 2027 and further declining to $65 per barrel in 2028. The rand weakens against the dollar but maintains a degree of resilience, trading at approximately R17/ through the year. Interest rate cuts continue but are delayed toward the end of 2026, with the nominal policy rate easing from 6.47% in 2026 to 5.93% by 2028.
• Intermediate scenario – A short conflict of roughly two months results in modest tightening of monetary policy, with somewhat higher oil prices and inflation compared to the baseline.
• Severe scenario – A prolonged conflict lasting longer than a year causes massive disruptions to global energy supply and materially higher energy costs. A risk premium is assumed to increase by 20% at its peak, while the rand is assumed to depreciate by approximately 10% relative to the first quarter of 2026. Inflation rises sharply, and the 3% target will not be achieved within the forecast horizon. Second-round effects begin feeding through the broader economy, and the risk of de-anchored inflation expectations becomes elevated – requiring a more forceful policy response to prevent inflation from becoming entrenched.

SARB Scenario Projections Table

Variable	Scenario	2026	2027	2028
Brent Crude Oil (US$)	Baseline	78.00	68.00	65.00
	Intermediate	85.00	72.00	67.00
	Severe	97.00	118.00	130.33
Headline Inflation (%)	Baseline	3.70	3.33	3.02
	Intermediate	4.05	3.58	3.01
	Severe	4.56	5.53	3.45
Nominal Policy Rate (%)	Baseline	6.47	6.05	5.93
	Intermediate	6.67	6.12	5.93
	Severe	8.17	7.13	6.19

A difference of just 1-2 percentage points in the policy rate can translate into hundreds of rands per month in additional repayments on a home loan. On a R1 million mortgage, a 1.5% rate hike could add roughly R800-R1 000 to monthly instalments.

The contrast between the baseline and severe scenarios is stark – under the worst-case outlook, Brent crude reaches over $130 per barrel by 2028, the nominal policy rate remains elevated at 8.17% in 2026, and headline inflation climbs as high as 5.53% in 2027 before beginning to moderate. South African consumers, already under significant financial pressure, would face a prolonged period of high borrowing costs and rising living expenses should the conflict escalate and persist.

Conclusion

The trajectory of South African interest rates in 2026 and beyond rests almost entirely on developments thousands of kilometres away in Iran. What began as a year that promised meaningful relief for indebted South African consumers – through anticipated rate cuts – has been overtaken by geopolitical events that the SARB has little power to influence. Should the conflict end quickly and oil prices stabilise, the central bank may yet deliver on those long-awaited cuts, albeit later than originally expected. However, a prolonged war carries the very real risk of entrenching inflation, forcing the SARB into rate hikes that would add further strain to already stretched household budgets and a sluggish domestic economy. For now, South Africans can only watch and wait.