The surprising decision by the Reserve Bank's Monetary Policy Committee (MPC) to keep the repo rate at 7.0% came despite the unexpected increase in the inflation rate from 4.5% in May 2026 to 5.0% in June.
The MPC argued that economic growth would remain under pressure, as highlighted in its statement: "We see downside risks to growth."
The MPC indicated that the forecast from its Quarterly Projection Model (QPM) showed the policy rate remaining broadly stable through the remainder of the year. "The model shows cuts later in the forecast, as inflation falls to 3% and rates adjust towards neutral levels."
The MPC argued that the stronger rand since the beginning of the year had contributed to lower fuel prices in July, that food inflation remained subdued after increasing by only 1.4%, and that fuel prices were expected to decline significantly again.
The MPC's decision to keep the repo rate unchanged appears contradictory, given that it acknowledged in its statement that services inflation remains challenging, with most components now well above 3%, including insurance, transport, and housing.
