Why does BNP Paribas expect the South African Reserve Bank to raise interest rates twice in 2026, and what is the main driver behind this forecast?

BNP Paribas expects the South African Reserve Bank (SARB) to raise its policy rate by 25 basis points at both the May 28 and July 23 monetary policy committee (MPC) meetings because inflation is set to surge due to energy supply-side shocks caused by the war in Iran. Specifically, the conflict has effectively closed the Strait of Hormuz — a critical chokepoint for about a fifth of global crude and liquefied natural gas flows — triggering a near 60% surge in oil prices since February 28, record-high domestic diesel prices, and gasoline costs rising to a near four-year high. These energy shocks are driving a 'more persistent breach' of SARB’s 3% inflation target and its 1 percentage point tolerance band starting from the second quarter of 2026, prompting BNP to conclude that the central bank 'will act swiftly to preserve its hard-won credibility gains' and 'will take no chances in terms of meeting its medium-term inflation target.'

What does BNP Paribas say about the durability of the current inflation shock in South Africa, and how does it affect the SARB’s policy outlook?

BNP Paribas states that 'a lot of the structural short-term damage to energy supply, inflation and expectations has already been done for 2026,' regardless of whether a sustainable ceasefire is reached in the coming weeks — indicating the inflationary impact is already locked in for the year. This assessment underpins their view that SARB’s inflation profile shows a 'prolonged and more persistent breach' of the 3% target and its 1-percentage-point tolerance band beginning in Q2 2026, which contrasts with SARB’s March forecast of 4% average inflation in Q2 and 3.7% in Q3. BNP notes their own numbers 'currently place us comfortably above what the SARB had forecast back at its March MPC,' reinforcing the expectation that the central bank will prioritize restoring credibility by acting decisively, as underscored by Governor Lesetja Kganyago’s statement that policymakers are 'very carefully monitoring incoming data' and remain 'very committed to getting inflation back to 3%, just where we had it before the shock hit.'

BNP Forecasts Two South African Rate Hikes Amid Energy-Driven Inflation

May 5, 2026

BNP Paribas forecasts two South African interest rate hikes to curb inflation triggered by energy supply shocks from the Iran conflict. Surging oil prices and record fuel costs are driving up energy and food expenses.

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