South Africa Viewpoint: July monetary policy preview: a close call between a hike and hold

Research evidence excerpt

South Africa Viewpoint: July monetary policy preview: a close call between a hike and hold

Inflation remains above the SARB’s comfort range

Even with the anticipated July moderation, we expect headline inflation to remain above

the SARB's preferred upper end, while both goods and services inflation are likely to stay

above the upper end of its 3-4% tolerance range. Meanwhile, we forecast core inflation

to remain unchanged at 3.8% y/y in June, before gradually rising to around 4.0%, broadly

in line with the timing of the projected headline inflation peak.

Inflation expectations moved lower with new target…

Exhibit 2: BER quarterly inflation expectations vs headline inflation

After the SARB moved to a 3% target in July 2025, inflation expectations trended down. However, the oil

price spike induced by the Iran war pushed up both inflation and inflation expectations

5.0

Average 1yr Average 2yr Average 5Y Headline CPI

4.5

4.0

3.5

3.0

2.5

2025Q1 2025Q2 2025Q3 2025Q4 2026Q1 2026Q2

Source: BER, BofA Global Research

BofA GLOBAL RESEARCH

The latest 2Q26 BER Inflation Expectation Survey showed that the recent energy price

shock has interrupted what had been a sustained improvement in inflation expectations.

Since the SARB formally adopted a 3% inflation target in July 2025, inflation

expectations had trended sharply lower, reinforcing confidence in the bank's ability to

anchor inflation around its new objective.

… but reversed in the 2Q26 survey

However, the 2Q26 survey showed a notable reversal. Average inflation expectations

increased to 4.4%, from 3.6% in 1Q26, with expectations rising across all forecast

horizons. One-year ahead expectations increased to 4.2%, two-year ahead to 3.9%, and

five-year ahead to 4.1%, compared with a flat 3.6% across all horizons in the previous