Joining CNBC Africa for more is Tatonga Rusike, Economist: Sub-Saharan Africa, Bank of America.
Mon, 20 Jul 2026 11:39:36 GMT
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Key Points:
- Bank of America expects the South African Reserve Bank to raise the repo rate by 25 basis points at this week’s policy meeting.
- The lender forecasts June inflation to rise to 4.7% from 4.5%, adding to pressure on policymakers ahead of the decision.
- Bank of America said inflation expectations have drifted away from the SARB’s preferred 3% anchor, strengthening the case for a final hike.
- The bank expects the July move to be the last increase in the cycle, with rates then likely to stay on hold before cuts resume in the second quarter of 2027.
- Despite subdued near-term growth of 1.3%, Bank of America said South Africa’s medium-term investment case has improved on reforms, fiscal gains and the prospect of further ratings upgrades.
Topics
South AfricaSARBSouth African Reserve Bankinterest ratesrepo rateinflationBank of AmericaTatonga RusikeMonetary Policy CommitteeSouth Africa economy
- Bank of America expects the South African Reserve Bank to raise its repo rate by 25 basis points at this week’s policy meeting.
- The bank said June inflation is likely to rise to 4.7% from 4.5%, while inflation expectations have moved further away from the SARB’s preferred 3% anchor.
- Bank of America expects the July move to mark the final hike in the cycle, with rates then likely to remain on hold before cuts resume in the second quarter of 2027.
- The lender said South Africa’s medium-term investment case has improved on stronger fiscal trends, reform momentum and the prospect of further ratings upgrades.
South Africa’s central bank is likely to deliver a final 25-basis-point interest rate increase at its meeting this week, Bank of America said, as firmer inflation prints and rising inflation expectations complicate the South African Reserve Bank’s push to keep price growth anchored around its 3% target.
Tatonga Rusike, economist for Sub-Saharan Africa at Bank of America, told CNBC Africa that two domestic factors stand out ahead of the South African Reserve Bank’s Monetary Policy Committee decision: the near-term inflation trajectory and a deterioration in inflation expectations.
Rusike said Bank of America expects South Africa’s June inflation print, due Wednesday ahead of the MPC announcement, to rise to 4.7% from 4.5%. That would leave inflation moving higher and likely reinforce the SARB’s caution even as headline price growth remains within the bank’s target band.
The bigger concern, he said, is that inflation expectations have become less firmly anchored around the central bank’s preferred 3% level. Rusike noted that expectations had previously fallen to around 3.6% after the SARB sharpened its focus on the lower end of its inflation objective, but the second-quarter survey showed expectations drifting wider again.
“So that’s a pain point for SARB,” Rusike said on CNBC Africa. “They really want to see inflation expectations anchored around 3%.”
He said even if some of the recent pressure proves temporary, including shocks linked to energy markets, the central bank would still want to see two-year and three-year expectations converging toward 3% rather than moving away from it.
That leaves policymakers balancing sticky inflation signals against some relief from global oil markets. Rusike said the June ceasefire had helped push oil prices substantially lower, to below $80 a barrel, improving the inflation outlook at the margin and strengthening the case for a pause.
Still, Bank of America’s base case remains for one more increase in July.
Rusike said the expected hike would likely mark the end of the current tightening phase, with monetary policy then staying on hold for an extended period. He added that Bank of America expects the easing cycle to resume only in the second quarter of 2027.
In the bank’s forecast, inflation does not fade quickly after the June print. Rusike said price growth is expected to remain above 4% for the rest of this year and to peak at around 4.7% again in the first quarter of 2027 before starting to decline thereafter.
That outlook, he said, argues for a cautious and relatively hawkish stance from the SARB over the next nine months. “Being more cautious or being more hawkish is probably appropriate as inflation remains above 4% for a prolonged period,” Rusike said.
The call suggests Bank of America sees the current hiking cycle as shallow compared with the more aggressive tightening phase seen in 2022. Rusike said that absent the recent energy shock, the bank would have expected rates to continue falling, potentially as low as 6%.
Instead, the policy outlook has shifted from easing to a brief renewed tightening cycle. Even so, Rusike said the move higher should be limited, describing the current phase as much lighter than the sharp increases delivered several years ago.
The growth trade-off remains central to the MPC’s decision. South Africa’s economic outlook is still subdued, with Bank of America forecasting gross domestic product growth of 1.3% this year.
Rusike argued that the SARB’s effort to bring inflation closer to target should ultimately create room for lower rates later, which in turn would support activity. He said lower inflation is the clearest path to sustainably lower borrowing costs.
“I think the first point is that lower inflation does bring lower interest rates,” he said.
He added that rate cuts expected next year should help support growth, while improved price stability would also influence how businesses and labor unions set prices and wage agreements. In the SARB’s view, he suggested, restoring confidence that inflation will return to a 3% handle is critical to preventing higher inflation from becoming embedded in the economy.
Rusike also pointed to signs that lower rates earlier in the cycle had already supported private-sector credit extension. That, he said, underlines why policymakers may accept near-term pain in order to secure a more durable disinflation trend.
Beyond the rate decision, Bank of America struck a constructive tone on South Africa’s broader investment case.
Rusike said investor sentiment toward South Africa has improved over roughly the past two years, helped first by an easing in energy shortages and then by reform momentum after the May 2024 elections. He said better fiscal dynamics have also supported the country’s appeal to investors, particularly in bond and equity markets.
Portfolio flows have been positive, he said, and South Africa has seen outlook upgrades from all three major ratings agencies for the first time. Rusike said Bank of America believes there could still be one more ratings upgrade ahead, particularly from S&P and Moody’s, potentially taking the sovereign to double-B-plus, one notch below investment grade.
If fiscal improvements continue and economic growth moves closer to 2%, South Africa could tilt back toward investment-grade status over the next three years, he said.
Rusike said the country is directionally moving into a stronger structural phase, but added that faster growth will be the real test. South Africa expanded by less than 1% in 2023 and 2024, he said, while growth in 2025 has moved above 1% and could edge toward 1.5% to 1.7% over the next two years.
That trajectory would still fall short of the roughly 2% pace needed to signal a more meaningful structural improvement. Rusike said continued reforms in logistics and electricity, alongside the future interest-rate path, would be key to lifting investment and growth from here.
The SARB is due to announce its latest decision this week, with investors set to watch not only the rate outcome but also the central bank’s guidance on inflation risks, expectations and the timing of any eventual return to rate cuts.
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