Reserve Bank keeps interest rate at 7% amid inflation and global uncertainty

The South African Reserve Bank's Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 7%, saying the current policy stance remains appropriate despite ongoing inflationary pressures and a fragile economic outlook.

On Thursday, Governor Lesetja Kganyago said rising oil prices, driven by the conflict in the Middle East, continue to pose risks to inflation, while weak consumer and business confidence are weighing on economic growth.

Although South Africa recorded stronger-than-expected economic growth in the first quarter, the Reserve Bank expects slower growth over the next two quarters as higher fuel costs and uncertainty affect households and investment.

The MPC noted that inflation remains above its 3% target, with fuel prices being the main driver, while services inflation also remains elevated. However, food inflation has eased and the rand has remained relatively stable.

The committee voted to keep interest rates on hold, with four members supporting no change and two favouring a 25 basis-point increase.

The Reserve Bank said future decisions will be made on a meeting-by-meeting basis, depending on inflation, economic data and global developments. It added that structural reforms, including improving local government and infrastructure, remain critical to boosting South Africa's long-term economic growth.