A360
Key Takeaways✦ Atlas AI
01
Goldman Sachs now expects two 25bp rate increases for South Africa, with meetings in May and July priced as likely start points for modest tightening.
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The forecast shift follows higher oil and inflation assumptions after Feb. 28 attacks on Iran, elevating imported inflation risks and complicating SARB’s policy path.
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SARB’s March policy rate of 6.75% and the May 28 MPC decision will be key near-term milestones for markets, households, and borrowing costs.
Atlas AI
South Africa rate hikes are now the baseline, with Goldman Sachs forecasting two quarter-point increases at the South African Reserve Bank’s meetings in May and July as higher oil and inflation assumptions feed through global markets.
Goldman shifts outlook after Middle East escalation
Goldman Sachs economist Andrew Matheny said the firm has moved from a cutting outlook to a baseline of two 25 basis-point hikes, while deeming larger half-point moves unlikely.
The bank raised its oil-price and inflation assumptions following ongoing hostilities after attacks on Iran on Feb. 28, a development it says elevates upside risks to consumer prices worldwide.
Policy context and central bank timing
The South African Reserve Bank left its policy rate at 6.75% at the March monetary policy committee meeting, with Governor Lesetja Kganyago and colleagues warning that price-pressure risks had increased since the February escalation.
The MPC will issue its next decision on May 28, a meeting now framed as the likely start point for the quarter-point moves Goldman expects in May and then again in July.
Goldman previously projected alternating cuts that would have brought a terminal rate of 5%, implying cumulative easing of roughly 75 basis points in 2026 under that scenario.
Under the revised view, the bank still anticipates the policy rate ultimately easing to 5% but notes a different path: 50 basis points of hikes first, then a structural cutting cycle that would reach 5% by 2029.
Implications for markets and households
Near-term bond and money-market pricing will likely react to the shift, with traders recalibrating expectations for the timing of monetary easing and the term premium on South African debt.
For consumers and businesses, even modest quarter-point increases raise borrowing costs for mortgages, corporate loans and consumer credit, slowing any nascent demand recovery.
Higher oil prices tied to the Middle East conflict add a direct channel to domestic inflation in South Africa, where energy and transport costs feed into headline inflation and wage negotiations.
Policymakers must balance the inflation impulse from imported energy costs against slower domestic demand and medium-term growth objectives.
Investors and analysts will watch three key indicators: incoming inflation data, oil-price trajectories, and the SARB’s tone on the persistence of price pressures at the May 28 meeting.
Should inflation re-accelerate or oil remain elevated, the SARB could feel compelled to follow through on modest hikes; conversely, sustained disinflation would restore the case for the previously anticipated easing cycle.
Next steps include the May 28 MPC decision, updated SARB forward guidance, and subsequent domestic inflation prints that will determine whether the projected two quarter-point moves become policy reality.
