Sarb ties SA rate path to Iran war timeline

The decision by the South African Reserve Bank (Sarb) to keep the repo rate unchanged at 6.75% on Thursday drew a measured response from economists, with some questioning the assumptions underpinning its baseline outlook.

Stanlib chief economist Kevin Lings says the Monetary Policy Committee (MPC) decision to hold rates was appropriate in the current environment.

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“[It] reflects the bank’s ‘wait-and-see’ approach to the sharply higher oil price and its impact on inflation and growth.”

However, he noted on social media platform X that the central bank’s base case appears “somewhat optimistic”, as it assumes the Iran conflict will end fairly soon without a lasting impact on oil prices.

Lings adds that the Sarb has left the door open to tightening policy if conditions worsen. It would be willing to hike interest rates later this year should oil prices remain elevated and “second round” inflation effects begin to emerge.

The conflict centres on tensions between Iran, the United States and Israel, following a series of strikes on energy infrastructure and other strategic targets.

Since the first airstrikes on 28 February, the conflict has sent oil prices soaring above $100 a barrel, amid disruptions to oil supply, including through the Strait of Hormuz.

While there are indications of talks between the US and Iran, there is no clear resolution yet and the situation remains uncertain, with the risk of further escalation.

Read: US and Iran wrangle over talks

‘So many moving parts’

During the Q&A session following the decision, Sarb Governor Lesetja Kganyago acknowledged the uncertainty facing policymakers.

“There are so many moving parts, and there are so many factors that impact the variables.”

He stressed that monetary policy decisions rely on judgement rather than rigid rules. “It’s more an art than a science,” he said, noting that policymakers must assess whether shocks are temporary or more persistent.

Kganyago said the decision to hold rates reflects a careful reading of the available data and risks.

“Getting into this meeting with all the information and data that we have at the moment, and our assessment of the outlook and the risks, we deemed it appropriate to keep rates the same,” he said.

He added that a more conservative stance could have justified a hike. “If we were conservative, we would have hiked,” he said.

Read: Iran war oil shock threatens to disrupt Africa’s easing cycle

Scenarios point to upside risks

The central bank’s scenario analysis highlights how quickly the outlook could shift.

One scenario assumes the conflict lasts around two months, with oil prices near $100 a barrel. A more severe case sees the war lasting beyond a year, with oil prices remaining high.

In both cases, inflation would rise, and interest rates could need to increase.

Kganyago cautioned that forecasts in such an environment are uncertain. “Forecasters will most likely be ‘all over’ [the place] because you’ve got a forecast driven by assumptions … we might walk out of here and by tomorrow things have changed significantly.

“My team did a brilliant job under very difficult circumstances. They are brilliant economists, but they’re not political analysts.”

Read: Oil climbs as US, Iran spar over talks and new Hormuz curbs loom

Growth concerns and consumer strain

Standard Bank economist Shireen Darmalingam says a rate hike could be considered if the conflict is still ongoing by the next MPC meeting in May, although weak growth may temper the case for tighter policy.

FNB CEO Harry Kellan notes that the decision to keep rates steady provides important relief and certainty for households and businesses navigating a still challenging economic environment.

Consumer data suggests households are already under pressure.

Insights from TransUnion show more than half of consumers have reported cutting discretionary spending, while a significant portion have reduced clothing purchases, delayed major expenses, and scaled back on services such as subscriptions and digital platforms.

The study also indicates a growing reliance on credit, with a notable share of consumers using credit to manage shortfalls in their monthly budgets.

In the property sector, there are calls for caution. Samuel Seeff, chair of the Seeff Property Group, warns against reacting too quickly to oil-driven inflation.

“The bank must guard against any premature or reactionary rate hikes triggered by the temporary oil price spike and petrol volatility caused by the Middle Eastern war.

“This geopolitical instability must be viewed as a temporary glitch rather than a reason to increase the cost of debt,” he adds, noting that consumers are already dealing with higher fuel and electricity costs.

Markets steady, but risks remain

Market reaction to the decision was relatively contained.

The JSE closed the day at 112 847 – 1.28% lower than the previous day and close to 10% down over the month.

The rand traded in a range of R16.93 to R17.10 against the dollar on Thursday, while Brent crude was between $102 and $107 a barrel, reflecting ongoing concerns about supply disruptions.

Analysts continue to warn that the geopolitical backdrop remains fluid.

According to a report by Alpine Macro, an Oxford Economics company, the conflict is likely to persist for longer than initially expected. It estimates that the war could drag on for roughly two months from its start, although escalation risks remain.

“Peace is not ‘at hand’ yet,” writes Dan Alamariu, chief geopolitical strategist at Alpine Macro and author of the analysis.

“Peak market panic is probably still in the next ~2 weeks or so,” he adds.