Inflation fears have bolted higher, but South African Reserve Bank governor Lesetja Kganyago and his monetary policy committee have more room to move gradually than markets assume.
The latest Bureau for Economic Research survey, run between May 18 and June 4, shows average headline inflation expectations for 2026 jumping to 4.4% from 3.6% in the first quarter. But the gauge the Bank watches most closely — average expectations two years out — sits at 3.9%, nearer the 3% target than the headline number suggests.
That gap underpins the case for patience. With the repo rate at 7% and headline inflation at 4.5%, the real rate — what remains after inflation is stripped out — is wide enough to act as a handbrake on the economy.
“South Africa’s real rates are already high,” Elna Moolman, group head of South Africa macroeconomic research at Standard Bank, tells the FM. “This should limit the need for monetary policy tightening, or at the very least give the SARB room to move gradually when the outlook and risks are uncertain.”
The path priced into forward-rate agreements (the contracts traders use to bet on where the repo rate is heading) looks “unlikely at this stage”, she argues: money markets see a July hike, then a long pause before another move late in the year.
The survey’s timing is everything. It caught respondents at the peak of the energy shock from the war between the US and Iran, which soured growth, with forecasters cutting 2026 GDP expectations to 1.2% from 1.5%. Since then, a 60-day ceasefire has reopened the Strait of Hormuz and pushed fuel prices down, which should drag inflation lower.
Kganyago has signalled the Bank won’t wait for inflation to fall on its doorstep, hence the 25-basis-point hike in May. But with the shock fading and consumers under pressure, the case to hold is building.
Household spending, which makes up two-thirds of the economy, slowed to 0.1% in the first quarter from 1.2% the prior three months, the weakest since early 2024, with 80,000 non-farm jobs lost in the quarter, according to the Bank and Stats SA.
Absa added to the gloom on Tuesday, guiding for earnings growth below 10% and for costs to rise slightly faster than income, calling the operating environment “challenging and uncertain”. Nedbank economists expect consumer spending growth to slow to 1.9% this year, from 3.6% in 2025. A consumer this fragile can ill afford another hike.
“It is very difficult to separate the temporary from the permanent increase in inflation expectations in response to the second-quarter oil price spike,” Moolman says. “It should largely be temporary, and it helps that the spike has already largely (but not entirely) reversed.”
Trouble is, the Bank won’t really know which until the next survey lands, and that’s another quarter away.
