By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole & Ame Muller
The South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) will meet next week against a backdrop of rising inflation expectations, easing global inflation pressures and a still-fragile domestic growth environment. While lower oil prices and softer United States (US) inflation have reduced some of the global inflation risks that dominated the previous meeting, the deterioration in domestic inflation expectations presents a more immediate challenge for policymakers. As a result, we continue to view a further 25-basis point (bp) increase in the repo rate as the most likely outcome.
The key development since the previous meeting has been the deterioration in inflation expectations. The latest BER Inflation Expectations Survey showed a broad-based increase across major forecasting horizons. Average expectations among analysts, businesses and trade unions rose from 3.6% to 4.4% for 2026, while expectations increased to 4.2% for 2027, 3.9% for 2028 and 4.1% over the next five years (see our Economics Weekly 3 July 2026). These developments suggest that the recent inflation shock is beginning to influence medium-term inflation perceptions, complicating the SARB's efforts to anchor inflation around its new 3% objective.
The inflation outlook also remains a concern. Higher energy prices linked to disruptions in the Middle East continue to place upward pressure on fuel costs and headline inflation. Our latest forecasts show headline CPI averaging 4.3% in 2026, up from 3.2% in 2025, before moderating to 3.5% in 2027 and eventually converging on the 3% target over the outer forecast horizon. Encouragingly, oil prices have retreated from the elevated levels that prevailed around the time of the previous MPC meeting, reducing some of the immediate upside risk to inflation. However, geopolitical uncertainty remains elevated, and the SARB is unlikely to place significant weight on what may prove to be a temporary easing in energy prices.
Ordinarily, weak economic growth would argue for a more accommodative policy stance. However, growth considerations are unlikely to outweigh inflation concerns at this meeting. Real GDP growth is expected to improve only modestly from 1.1% in 2025 to around 1.2% in 2026, before strengthening gradually to 1.3% in 2027 and approaching 2.0% by 2028/29. Recent business and activity indicators continue to point to a subdued domestic economy, with confidence weakened by higher operating costs and tighter financial conditions.
Ultimately, the MPC's decision will hinge on preserving the credibility of the transition towards a 3% inflation objective. Although oil prices have eased since the previous meeting and US inflation has surprised to the downside, domestic inflation expectations have moved further away from levels consistent with that objective. We therefore expect the SARB to deliver another 25bp rate hike at the upcoming meeting. While this will be unwelcome news for households and businesses, it should also mark the final phase of the current tightening cycle. As external inflation pressures fade, inflation moderates and growth gradually strengthens, the conditions for lower interest rates should begin to emerge over the medium term.
Week in review
Mining production (not seasonally adjusted) declined by 5.4% year-on-year (y/y) in May, down from 8.0% in April. Seasonally-adjusted mining output fell by 5.2% month-on-month (m/m), following a 3.1% rise in March. The largest negative contributors were Platinum Group Metals (PGMs), iron ore, and coal. Overall, mining output declined by 1.7% in the three months ending in May compared to the previous three months.
Weekly Round-Up: Economics from Broader Africa
