South Africa’s central bank said on Tuesday that the Iran war poses fresh upside risks to inflation, even as price pressures remain broadly contained within target bounds.
The South African Reserve Bank (SARB) warned that the Middle East conflict could push inflation higher in the near term, with energy markets already reacting sharply to uncertainty.
It expects headline inflation to average 3.7% this year before gradually easing back toward its 3% target by late 2027.
“Uncertainty regarding the duration of the Middle East conflict… skews risks to the upside,” the bank said, highlighting possible second-round effects.
Inflation stood at 3% in February, but that reading predates the escalation of regional hostilities now reshaping global energy dynamics.
In its policy review, the SARB outlined scenarios showing how prolonged conflict could intensify price shocks across fuel and transport sectors.
Under a severe scenario, oil prices could remain above $97 per barrel, pushing inflation beyond its forecast horizon and delaying target alignment.
Markets have begun pricing in a more hawkish stance, now expecting about two 25-basis-point rate hikes this year.
That outlook marks a sharp reversal from earlier expectations of rate cuts in 2026 before the conflict intensified.
Despite the risks, the bank said South Africa is better positioned than during the 2022 energy shock due to fiscal consolidation and a lower inflation target.
The central bank has kept its benchmark interest rate at 6.75% throughout 2026, following a modest cut in late 2025.
It stressed that while the war adds volatility, it does not yet threaten to derail the country’s broader disinflation path.