South Africa: Oil shock raises benchmark rate to 10.75%
The central bank raises its benchmark interest rate despite an economic contraction. Home loans, car loans, and other credit linked to the prime rate will become more expensive starting September 25.
The South African Reserve Bank raised its benchmark interest rate by 25 basis points to 7.25% on Wednesday, September 23, a decision that increases the commercial banks’ prime rate to 10.75% effective Friday, September 25. The Monetary Policy Committee’s vote was unanimous.
This increase will raise the cost of home loans, car loans, and other variable-rate credit linked to the prime rate. It comes as the economy contracted by 0.2% in the second quarter, and the central bank has lowered its growth forecast for 2026 from 1.4% to 1.2%.
Governor Lesetja Kganyago attributed this tightening to new pressures on fuel prices. The institution cited weak oil flows in the Strait of Hormuz, disruptions to Saudi exports due to the fighting in Yemen, and damage to refining capacities caused by the war in Ukraine.
South Africa’s inflation rate reached 4.4% in August. The central bank expects it to exceed 5% by the end of 2026 and early 2027 before returning to its target of 3% by the end of 2027. Its central model keeps the benchmark rate largely stable until the end of the year.
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