South Africa could be on course for another interest rate hike as rising oil prices and renewed inflation concerns place added strain on the economy, according to Bank of America.
In a recent research note, the bank indicated that it anticipates the South African Reserve Bank (SARB) will increase its benchmark repo rate by 25 basis points at the upcoming policy meeting, potentially pushing the rate to 7%.
The outlook follows fresh geopolitical tensions in the Middle East that have driven up global crude oil prices and reignited fears about energy supply disruptions. For South Africa, a net fuel importer, higher oil prices quickly feed into rising costs for petrol, transportation, and food.
According to Bank of America, consumer inflation which had been relatively stable earlier in the year is now expected to pick up pace.
The bank projects headline inflation to reach 3.7% in April and 4.1% in May, exceeding the Reserve Bank’s preferred 3% target and increasing pressure on policymakers.
“To keep inflation expectations aligned with the target, the SARB is likely to raise rates in May,” the bank noted.
Why borrowing costs could rise again
The central bank in South Africa has maintained a cautious approach in recent months, repeatedly warning that external shocks, currency depreciation, and persistent domestic price pressures continue to pose risks to inflation.
An interest rate hike would signal that authorities remain committed to maintaining price stability, even as economic growth remains subdued.
While higher rates can help curb inflation by reducing spending, they also raise borrowing costs for households and businesses.
This creates a challenging trade-off for the Reserve Bank, as consumers are already dealing with high living expenses alongside a slow-growing economy.
Fuel and food costs remain major concerns
Bank of America highlighted fuel prices as the most immediate risk, given their widespread impact across the economy.
As transport costs rise, businesses face higher logistics expenses, while food producers encounter increased input costs.
The bank also cautioned that fertiliser prices could further intensify inflationary pressures later in the year. South Africa relies heavily on imported fertilisers, leaving it exposed to fluctuations in global markets.
If these costs stay elevated, food inflation could strengthen in the coming months.
Interest rates could stay elevated for longer
Bank of America expects inflation to hover around 4% for much of 2026, peak at roughly 4.4% in early 2027, and only gradually decline thereafter. This outlook suggests there may be little scope for near-term rate cuts.
Should oil prices ease and geopolitical tensions subside, the Reserve Bank might pause its tightening cycle later in the year.
However, if crude prices remain elevated or the rand weakens significantly, further rate increases may still be on the table.
For investors, businesses, and homeowners, the implication is clear: the fight against inflation in South Africa is ongoing, and borrowing costs are likely to remain higher for an extended period.