Middle East war clouds rate-cut outlook as SA Reserve Bank weighs inflation risks

SOUTH Africa's interest rate outlook has become increasingly uncertain as escalating conflict in the Middle East drives volatility in oil prices, the rand and global financial markets, raising fresh questions about whether the South African Reserve Bank (Sarb) will proceed with further rate cuts this year.

- SIPHELELE DLUDLA

LESETJA Kganyago, Governor of the South African Reserve Bank. The Sarb's Monetary Policy Committee faces a delicate balancing act as inflation risks have emerged due to rising global oil prices on the back of escalating war in the Middle East. I SARB I Facebook

(SARB Facebook)

At the start of 2026, the case for additional monetary easing appeared solid. Consumer price inflation stood at 3.5% year-on-year in January, comfortably close to the preferred 3% anchor.

With inflation well contained and economic growth modest, expectations had built around one further 25 basis point repo rate cut later this year to put the repo rate at 6.5%, and possibly another in early 2027.

The domestic growth backdrop remains subdued.

GDP is forecast to improve only mildly to around 1.6% in 2026 from an estimated 1.4% in 2025.

While last year's rate reductions are still filtering through to households and businesses, the economy remains highly sensitive to credit conditions.