South Africa Economics: SARB: Surprise unchanged stance leaves ZAR weaker; we have another rate hike in our baseline

Research evidence excerpt

South Africa Economics: SARB: Surprise unchanged stance leaves ZAR weaker; we have another rate hike in our baseline

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23 Jul 2026 10:48:12 ET │ 8 pages

South Africa Economics

SARB: Surprise unchanged stance leaves ZAR weaker; we have another

rate hike in our baseline

CITI'S TAKE

The SARB surprised markets by keeping its policy rate unchanged, a

decision we view as a temporary pause. Despite the SARB citing lower

near-term CPI forecasts, we remain concerned by underlying inflation, Gina SchoemanAC

particularly in services. We maintain our baseline forecast for a 25bp rate +27-11-944-0813

hike in September. We believe upside inflation risks, rising inflation gina.schoeman@citi.com

expectations, and global rates picking up will compel the SARB to resume

its tightening cycle. The ZAR's immediate weakening reflects market

disappointment and validates the need for further policy action to anchor

inflation.

SARB surprised by keeping the policy rate unchanged at 7.00% in a 4-2 split, citing

downside risks to GDP growth (though the 2026 forecast was revised upwards) yet

upside risks to inflation (though the near-term forecasts were revised downwards).

The market wanted higher rates as assurance against rising inflation as reflected in

the USDZAR weakening off the surprise decision (from 16.47 at start of Governor’s

statement, to 16.62 when the decision was made).

The decision to keep the policy rate unchanged comes as a result of lower near-

term CPI forecasts for 2026 given a lower oil price assumption and relatively

unchanged forecasts for core inflation, in our view. Underlying inflation is a concern

for us, however--especially services inflation at 5.2%--and the SARB did admit that

all its measures of underlying inflation are trending higher now.