Geopolitical Shocks Keep Reserve Bank Cautious on Interest Rates

The South African Reserve Bank’s decision to keep the repo rate unchanged at 6.75% must first and foremost be viewed against the backdrop of South Africa’s rising geopolitical and diplomatic risks — particularly the growing tension with the United States. 

According to Thys van Zyl, CEO of Everest Advisory Services, the global order is currently exceptionally fragile, and South Africa finds itself in a particularly sensitive position within this international uncertainty. 

“Even though the domestic inflation picture appears favourable, the global political climate is highly unstable. The possibility of a further deterioration in diplomatic relations with the United States — or even trade and financing restrictions — places direct pressure on capital flows, investor sentiment and the rand. This limits the scope for aggressive interest rate relief,” says Van Zyl. 

He warns that any further escalation in international tension could easily undermine South Africa’s efforts toward economic recovery. 

“Monetary policy cannot operate in a vacuum. If geopolitical strain leads to trade restrictions, tariffs or even sanction risks, it raises the cost of capital and prolongs uncertainty — even as domestic data begins to improve.” 

Reserve Bank Governor Lesetja Kganyago’s remarks about a “rupture in the global political order” and new threats to central bank independence underline that this is not an ordinary monetary cycle. 

The Monetary Policy Committee therefore has to maintain a delicate balance between local inflation risks — such as food price pressures stemming from foot-and-mouth disease — and broader international shocks defining the start of 2026. 

“In such an environment, a wait-and-see approach is probably the only rational option,” says Van Zyl. 

The decision comes despite inflation remaining relatively low. Inflation edged up slightly to 3.6% in December from 3.5% in November, while the average inflation rate for 2025, at 3.2%, was the lowest level in more than two decades. 

“The inflation environment technically creates room for interest rate cuts,” says Van Zyl. “However, the Reserve Bank first wants certainty that price pressures will continue to ease sustainably — and that international risks will not deliver a new shock.” 

The Reserve Bank is also in the process of entrenching its new 3% inflation target, and is reluctant to move too quickly before expectations are more firmly anchored. 

Van Zyl emphasises that the prospect of further interest rate relief has not disappeared entirely, but is more likely to shift to later in 2026. 

“A stronger rand and lower oil prices provide temporary buffers, and falling fuel prices could potentially create additional space. But the Reserve Bank will first need to factor in the international climate and the risks surrounding South Africa’s key trading partners,” says Van Zyl. 

The continuation of beneficial trade agreements such as AGOA also remains a critical issue for growth, and it is uncertain whether South Africa’s diplomatic position will be able to safeguard its access. 

Van Zyl cautions that interest rate decisions alone cannot restore growth. 

“The greatest danger is not that the Reserve Bank is being too cautious, but that South Africa’s policy implementation and reform momentum may not advance quickly enough to build investor confidence. Rates may fall later, but growth requires consistent execution and international stability. 

“The economy is showing early signs of direction, but momentum remains fragile. In 2026, the biggest question will not only be what the Reserve Bank does — but how South Africa manages its place in a changing global order.”