South Africans hoping the Reserve Bank might sit on its hands next week are likely to be disappointed, at least if Bank of America has read the room correctly. The US lender expects the central bank's Monetary Policy Committee to lift the repo rate by another 25 basis points when it announces its decision on 23 July — even though its own forecasts show inflation about to turn the corner.
In its latest South Africa viewpoint report, the bank predicts consumer inflation will accelerate to 4.7% year on year in June before easing back to 4.2% the following month. "CPI could rise to 4.7% in June before slowing to 4.2% in July, as lower fuel prices outweigh higher rental and electricity," it said. Both figures sit above the 2%-4% tolerance band around the Reserve Bank's new 3% target, adopted last year.
Why cooling prices may not be enough
The call turns on expectations rather than the current print. "We expect the SARB to hike by 25 basis points at the July 23 meeting, following the May hike to 7%, and then pause," the bank said. It readily conceded that the case for standing still had improved: "The case for a hold has strengthened somewhat because oil prices have fallen after the mid-June Iran ceasefire, but we lean towards a hike because inflation expectations have moved higher and inflation remains above the Sarb's comfort range."
That worry is grounded in hard data. The Bureau for Economic Research's second-quarter survey recorded a jump in inflation expectations across every group polled. Analysts, business leaders and trade union officials lifted their average forecast for 2026 to 4.4% from 3.6%, while their five-year view rose to 4.1% from 3.6%. Households were gloomier still, expecting 6% inflation over the coming year, up from 5.4%.
7.00%Repo rate after the May hikeSource: SARB4.5%Headline inflation, MaySource: Stats SA
A split committee, again
The MPC's six members were divided in May, when two of them preferred to leave the rate at 6.75% rather than push it to 7% — its first increase in three years. Bank of America expects next week's vote to be similarly tight. Producer inflation is not helping the doves' case either, having galloped to 7.8% in May from 4.8% in April, a sign of input costs that firms may still pass on to shoppers.
Deputy governor Rashad Cassim has argued the reward for holding the line arrives later. Anchoring expectations close to 3% "will allow us to set lower short-term rates, probably closer to 6% than 7%", he said last month.
What it means
For anyone carrying a bond, a car loan or a credit card, the gap between "inflation is falling" and "rates are rising" is where the money lives. Another 25 basis points would take the prime lending rate from 10.5% to 10.75%, lifting repayments on every rand of variable-rate debt even as the headline number improves.
The Bank's reasoning, on this reading, is that it is fighting tomorrow's expected price rise rather than today's actual one — a harder case to sell to a household budget, but the same trade-off Cassim was pointing at: pressure now in exchange for a lower rate floor later. It is worth stressing that this is a forecast, not a decision, and Bank of America itself calls it close.
