South Africa's central bank tightened monetary policy on Thursday for the first time since 2023. Fuel costs and Middle East tensions have pushed inflation higher than expected.
The South African Reserve Bank hiked its key repo rate by 25 basis points to 7 percent. Officials said the increase was necessary to keep inflation in check.
Economists had predicted this move. Annual consumer inflation jumped to 4.0 percent in April from 3.1 percent the previous month.
Rising fuel prices drove most of the inflation surge. The U.S.-Israel conflict with Iran has disrupted global energy markets and raised crude oil costs.
This marks SARB's first rate increase since 2023. Policymakers worry that imported inflation could become permanent if oil prices stay high.
"The committee remains focused on ensuring inflation returns sustainably to target," the bank said in its statement. Geopolitical tensions and volatile commodity markets pose serious risks ahead, officials warned.
South Africa targets inflation at 3 percent. The bank allows for one percentage point above or below that level.
Several other African nations have also raised rates recently. Botswana, Rwanda, and Mauritius tightened policy as energy and import costs climbed across the continent.
Many central banks elsewhere in Africa have held rates steady instead. They're waiting to see how the Middle East conflict affects their economies.
Goldman Sachs now expects two more consecutive 25-basis-point hikes from SARB. The investment bank cited worsening Middle East tensions and sustained oil price increases for the change.
It reversed its earlier forecast for rate cuts this year. Geopolitical risks have become too severe to ignore, analysts noted.
Higher borrowing costs will pressure households and businesses alike. An economy already burdened by weak growth and joblessness will feel additional strain.
Electricity supply shortages add to these challenges. South Africa's economic outlook remains fragile at best.
Yet policymakers seem willing to accept near-term pain for long-term stability. Price stability must come first, they've decided, or consumer confidence will collapse entirely.
SARB's decision reflects growing alarm across emerging markets. Central banks worldwide face similar pressures from energy shocks and geopolitical instability.
