The Reserve Bank has raised the policy rate by 25 basis points to 7.25% amid escalating global shocks and inflation risks. This comes as a result of escalating geopolitical conflicts and a fresh surge in fuel prices that threaten to push domestic inflation further above the 3% target.

Reserve Bank Governor Lesetja Kganyago says the global shocks are hurting the economy.

“We continue to project growth of around 2% over the medium term. This is based on global conditions stabilising, and domestic reforms delivering a better business environment. Our assessment is that growth risks are skewed to the downside.”

The local economy contracted by 0.2% in the second quarter, while the central bank has raised its near-term inflation forecasts.

Kganyago says this is mainly because of higher fuel prices.

“Petrol is rising again after moderating between June and August, with an average under-recovery of R2.83 per litre, currently. Headline inflation will likely be above 5% later this year and early next year, before slowing as the fuel shock recedes. We currently expect inflation to be back around 3% towards the end of 2027.”

CPI

Stats SA data shows annual consumer inflation increased to 4,4% in August from 4,3% in July.

Investec Chief Economist Annabel Bishop says fuel prices are likely to go higher in October, spelling bad news for motorists.

She says, “September saw a R1.34/litre hike in the petrol price, which will keep inflation from falling in the month despite downward pressure from a higher base effect. In October, the petrol price is set to rise by a substantial R2.84/litre, as fuel prices remain volatile. The Brent crude oil price is still below US$100 per barrel, but tensions in the Middle East have escalated substantially again, and uncertainty is high about the direction of the Middle East war.”

The higher interest rates mean indebted consumers will have to dig deeper in their pockets to meet their monthly debt repayments.

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