South Africa keeps interest rates unchanged despite inflation hitting a two-year high.

Written by Ziad Abdel Fattah:
The central bank of South Africa kept ThursdayThe main interest rate was left unchanged at 7%, a move that defied the expectations of a number of investors and analysts who had predicted a new increase in interest rates, after the inflation rate rose to its highest level in two years during last June.

The decision triggered a swift reaction in the markets, with the South African rand falling by about 2% against the dollar during today's trading, as investors reassessed their expectations regarding monetary policy.

The current level of interest rates is still appropriate.

The central bank explained that the Monetary Policy Committee deemed the current interest rate level appropriate and that the current monetary policy is sufficiently tight to support price stability. Four committee members supported the decision to maintain the interest rate, while two voted in favor of raising it by 25 basis points.

At the same time, the bank lowered its inflation forecast for this year to 4% compared to previous estimates of 4.4%, and raised its forecast for economic growth in 2026 to 1.4% instead of 1.2%.

Annual inflation reached 5% during June

The annual inflation rate had risen to 5% in June, its highest level in two years, exceeding the central bank's target of 3%.

Central Bank Governor Lesitja Kganyago said during a press conference that the bank expects inflation to return to the target range by the end of next year, before subsequently stabilizing at the target level.

Monetary policymakers face a challenge

He added that monetary policymakers face a challenge in that high inflation rates coincide with weak domestic demand, which imposes a delicate balance between containing inflationary pressures and supporting economic activity.

The bank indicated that its quarterly forecast model suggests interest rates will remain unchanged for the rest of the year, after raising them for the first time in three years at its previous meeting last May, as part of its efforts to control inflation and maintain economic stability.

In another context, the south took Africa A new step to reorganize the labor market, by launching a policy that prioritizes citizens and permanent residents in employment opportunities, in exchange for providing incentives to companies that adhere to these rules, most notably accelerating the procedures for issuing work visas for specialized foreign personnel.

The move comes as part of government reforms aimed at striking a balance between attracting foreign investment and preserving job opportunities for citizens, amid escalating domestic debate over immigration and unemployment.