The monetary policy committee (MPC) is expected to keep interest rates on hold as committee members weigh a growing global oil shock against domestic inflation, which remains subdued.
Sanlam Investments economists argue that while risks to the inflation outlook are rising, the nature of the threat does not yet justify a rate hike.
Arthur Kamp and Patrick Buthelezi were speaking ahead of the MPC decision on Thursday, highlighting that the South African Reserve Bank faces a more complex backdrop than February’s headline inflation figure suggests.
They said a decision to hold would reflect the need to balance rising global risks with fragile domestic conditions.
Higher rates will not counter rise in oil prices
It would also signal that while the inflation outlook has become more uncertain, policymakers are not yet ready to respond aggressively.
They said higher interest rates would do little to counter a surge in oil prices caused by geopolitical developments in the Middle East, particularly the closure of an important shipping route, the Strait of Hormuz.
“The Strait of Hormuz handled roughly 20-million barrels a day in 2024, equivalent to about one-fifth of global petroleum liquids consumption.
“The closure of the Strait following the US-Israeli strikes on Iran in late February has, therefore, removed roughly 20% of global seaborne oil from the market.
“A disruption of that magnitude can rapidly escalate into a South African inflation crisis, affecting fuel, transport, and ultimately, food.
“That is why this week’s MPC decision is not really about where inflation was in February. It is about whether the latest oil shock interrupts the process of getting inflation sustainably settled around the Reserve Bank’s 3% objective,” said the duo.
Risk of sharp increase in fuel costs
They emphasised that interest rates would not be able to reopen shipping routes or produce more crude and that the country’s weak growth further limits the case for tightening policy.
According to Kamp and Buthelezi, the real issue confronting the South African Reserve Bank is no longer past inflation data but the risk posed by a sharp increase in fuel costs.
They said data from the Central Energy Fund show significant under-recoveries in petrol and diesel prices, indicating that steep increases may lie ahead, and the situation is directly impacted by the closure of the Strait of Hormuz.
Such a disruption has far-reaching consequences, including higher fuel prices, transportation costs, and eventually food inflation. These are all important components of South Africa’s inflation basket.
“The key risk the MPC will be watching is whether higher fuel costs spill into transportation, food, and broader inflation expectations, potentially derailing the path back to the 3% target.”
