South Africa’s interest rate outlook has become unusually uncertain, with the geopolitical crisis in Iran fundamentally reshaping what was supposed to be a straightforward year of rate cuts. Just months ago, economists were confidently predicting that the South African Reserve Bank would slash interest rates by 50 basis points in 2026, but the escalating conflict in the Middle East has thrown those projections into disarray, leaving households and businesses wondering what to expect from the SARB interest rate decisions ahead.
The shift in sentiment is dramatic. Earlier in the year, when inflation appeared to be cooling and the Reserve Bank had reset its target to 3.0%, there was genuine optimism that borrowers would finally catch a break after years of elevated rates. The repo rate sat at 6.75%, and financial markets were pricing in a cycle of gradual reductions. But then the escalation between the US, Israel, and Iran in March changed everything, sending crude oil prices soaring and threatening to unwind months of careful disinflation work.
What’s particularly vexing for policymakers at the SARB is the timing. South Africa’s March CPI came in at 3.1%, just a whisker above the central bank’s target and well within their tolerance band of 1 percentage point either way. Most analysts thought this gave Governor Lesetja Kganyago and his monetary policy committee some room for manoeuvre. But that snapshot doesn’t tell the whole story — it doesn’t capture the full inflationary punch from oil price spikes that followed the conflict.
Dr Elna Moolman, who heads up macroeconomic research at Standard Bank, has been sounding the alarm about what April’s inflation data will reveal. When the conflict erupted, global oil markets went haywire, particularly after reports of Strait of Hormuz disruptions. In South Africa, that translated into brutal fuel price jumps — petrol shot up by R3 per litre and diesel by R7 in early April alone, despite the government’s decision to slash the fuel levy by R3. Even with that government support, South African motorists and businesses were left nursing significantly higher energy costs.
The April CPI release will be the real test of whether the SARB needs to alter course. With fuel price rises now embedded in the system and energy costs flowing through to transport, manufacturing, and consumer goods, inflation is almost certain to tick up when those numbers drop. This is where the uncertainty becomes paralyzing for rate-setters: do they act preemptively to head off second-round inflation effects, or do they wait to see whether the Iran conflict resolves quickly?
The SARB’s three scenarios for interest rate decisions and economic outcomes
The Reserve Bank itself has laid out three distinct pathways forward, and they paint a picture ranging from “manageable” to “quite serious.” The baseline scenario assumes a short conflict, with global oil prices averaging $78 per barrel this year before gradually easing to $68 in 2027 and $65 in 2028. Under this optimistic interpretation, inflation creeps up to 3.7% this year but remains within reach of the 3% target by 2028. The repo rate would start declining at the end of 2026, falling from 6.47% to 5.93% by 2028.
The second pathway — call it the “middle ground” — sees a short conflict lasting roughly two months. This scenario accepts modestly higher oil prices at $85 per barrel for 2026, pushing inflation to 4.05%. The policy response is slightly more hawkish, with rates starting at 6.67% and only gradually declining thereafter. It’s the version where the SARB holds its nerve, keeps rates steady for a while longer, but doesn’t have to pull the panic lever.
Then there’s the scenario nobody wants to contemplate: a severe conflict lasting longer than a year that causes massive energy supply disruptions. In this case, oil prices spike to $97 per barrel this year, then catapult to $118 in 2027 and $130 in 2028. Inflation explodes to 4.56% in 2026, then 5.53% in 2027 — well above the SARB’s tolerance band and pushing into genuinely problematic territory. The policy response would be forceful: the repo rate would jump to 8.17% in 2026, climbing to 7.13% in 2027. That’s the scenario where South African borrowers face another wave of rate pain, not relief.
Moolman’s assessment is worth taking seriously because it reflects the genuine dilemma facing the SARB. The bank has signalled that it’s committed to its new 3% inflation target, but it’s also clearly attuned to the reality that geopolitical shocks are beyond its control. If the Iran conflict fizzles out relatively quickly — and there are tentative signs that direct escalation may be being managed — then the central bank might actually be able to deliver some of the rate cuts that borrowers have been waiting for. But every week the conflict continues is another week that oil remains elevated, that import costs stay high, and that pressure on the rand exchange rate persists.
The rand’s trajectory matters enormously in all of this. In the baseline scenario, it holds reasonably firm at around R17 to the dollar, providing some natural braking mechanism against imported inflation. But in more stressed scenarios, the currency weakens sharply — potentially by 10% or more — which makes foreign goods and oil even more expensive in rands and forces the SARB’s hand toward tighter policy. It’s a vicious cycle that emerging market central banks know all too well.
What this means for ordinary South Africans is real uncertainty. Mortgage holders, small business owners, and anyone carrying debt are caught in limbo. The interest rate environment that materialises depends on developments in a conflict halfway around the world, over which South Africa has zero influence. The SARB has done what it can to prepare markets for multiple outcomes, but the honest truth is that nobody knows which scenario will unfold. What we do know is that SARB interest rate decisions in the coming months will be driven primarily by global oil prices and geopolitical stability — not by domestic economic conditions, which would normally be the primary consideration.
The Reserve Bank’s next policy meeting will be closely watched by investors, economists, and anyone with a mortgage. Whether Kganyago and his team decide to hold rates, cut them, or raise them will send powerful signals about how seriously they’re taking the inflation risks. For now, South Africans should prepare for the possibility that the rate cuts they were expecting might not arrive as quickly as advertised — and might not arrive at all if the Middle East situation deteriorates further.