Key facts
- South Africa's central bank unexpectedly kept its key interest rate unchanged at 7%.
- The decision was made by the Monetary Policy Committee, with four members supporting the hold and two favoring a 25 basis point increase.
- Most economists had predicted a 25 basis point rate hike.
- The rand weakened following the announcement.
- Annual inflation in South Africa accelerated to 5.0% in June.
South Africa's central bank unexpectedly maintained its key interest rate at 7% on Thursday, a decision that sent the rand currency lower as most economists had anticipated a rate hike. The Monetary Policy Committee (MPC) stated that its current policy stance is appropriate after having raised rates at the previous meeting in May. Four members of the MPC supported keeping the rate unchanged, while two favored a 25 basis point increase. This move contrasts with the majority of economists polled by Reuters, who had predicted a 25 basis point hike, partly due to rising global oil prices amid renewed tensions between Iran and the United States.
The South African Reserve Bank targets inflation within a band of 3% to 4%. Annual inflation accelerated to 5.0% in June from 4.5% in May. The bank has previously reduced rates by 125 basis points since September of the prior year and is now pausing to assess the economic impact, inflation risks, and evolving expectations. Policymakers project headline inflation to average 3.4% in 2025 and 3.6% in 2026, slightly higher than previous forecasts, before easing to 3% in 2027. The 2025 growth forecast was revised upward to 1.2% from 0.9%, following better-than-expected Q2 GDP figures.