Even though oil prices are below the peaks reached during the height of the US-Iran conflict, an extended disruption could put new pressure on inflation.
South Africa’s monetary policy decision is expected to be another close call when the South African Reserve Bank’s Monetary Policy Committee (MPC) announces its interest rate decision on Thursday (23 July).
After raising the repo rate by 25 basis points to 7% in May following the February oil price shock, economists are divided over whether the central bank will hike rates again or leave them unchanged.
Renewed hostilities between the US and Iran have pushed oil prices higher, which in turn raises inflation expectations and strengthens the case for another increase.
There are also arguments for a pause in rates – the oil price has not reached the highs of March and April when it traded above $110 a barrel, and the rand has been resilient against the dollar.
Second-round inflation effects
Patrick Buthelezi, an economist at Sanlam Investments, expects the Reserve Bank to raise interest rates again on Thursday as inflation moves above target and geopolitical developments increase upside risks to the inflation expectation.
Renewed hostilities between the US and Iran have reversed the earlier drop in oil prices and added uncertainty to the global outlook all over again.
Even though oil prices remain below the peaks reached during the height of the conflict, an extended disruption could eventually place renewed pressure on inflation.
Buthelezi also expects central banks around the world to remain cautious of second-round inflation effects flowing from higher energy prices.
Although he believes the MPC is likely to remain split on the issue, he expects a measured and moderate hiking cycle.
‘A close call’
Mike van der Westhuizen, portfolio manager at CAM Asset Management, expects Thursday’s decision to go either way.
He estimates there is around a 60% chance of another rate hike, or at least a more hawkish message from Reserve Bank Governor Lesetja Kganyago.
“The upcoming MPC meeting is likely to be quite a close call again,” he says.
Van der Westhuizen believes June inflation data – due to be released on Wednesday (22 July) – will be closely watched but is unlikely to significantly influence the rate decision, as the Reserve Bank’s forecasts and deliberations will already have been largely concluded.
“The inflation print released a day before the meeting may have some bearing on the final decision, but the decision would have already been largely shaped by then,” he says.
Instead, he believes inflation expectations remain the key risk.
The Reserve Bank has made a concerted effort to anchor inflation expectations closer to its preferred 3% objective. However, longer-term expectations have started moving higher again.
Van der Westhuizen says stubborn core inflation, together with the Reserve Bank’s focus on a lower inflation target, supports the case for another hike.
The Reserve Bank however is aware of the trade-off between raising rates to fight inflation and the negative effect this can have on growth and consumers.
“Another hike, or even a more hawkish tone, would be negative on the margin for consumers,” he says.
The case for a pause
Johann Els, chief economist at PSG Financial Services, is of the view that the MPC is more likely to leave rates unchanged.
He argues that the Reserve Bank’s May rate increase was a pre-emptive move and that policymakers are now likely to adopt a wait-and-see approach while assessing the impact of recent policy actions and developments in energy markets.
Els expects headline inflation to rise in June, largely because of higher petrol prices during the month, before easing again from July following the latest fuel price reductions.
“Our own forecast is for inflation of 4% this year, 3.2% next year, and 3% in 2028, which would support further gradual policy easing over time.”
Published by Moneyweb by Liesl Peyper · 22 Jul 2026, 04:02