SARB warns of inflation risks ahead of July interest rate decision

South Africa’s central bank governor Lesetja Kganyago has warned that shifting global economic forces, including U.S. tariff threats and potential deflation in China, could cloud the country’s inflation outlook.
The remarks come just weeks ahead of the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) rate-setting meeting on July 31, BusinessTech informs.
External Pressures: Tariffs and China’s Slowdown
Speaking to Bloomberg at a G20 gathering near Durban, Kganyago stated that renewed U.S. tariff threats—revived by President Donald Trump, who signaled new duties by August 1—could dampen global economic activity.
Since the U.S. is South Africa’s second-largest trading partner after China, tariffs could ripple through local sectors like agriculture and automotive, slowing growth and driving inflation.
“The big thing about the tariffs is that they would impact on economic activity,” Kganyago said. “You might end up with inflation yourself.”
In contrast, China's weakening demand and signs of deflation could create a counterbalance. Known as the "factory of the world," China could begin exporting disinflation through lower-priced goods, possibly mitigating some upward pressure on prices globally.
“Economic relationships we relied on are moving in directions we’re not used to,” Kganyago noted, citing rising uncertainty in forecasting inflation.
Interest Rate Outlook: Economists Divided
The SARB’s MPC last cut the benchmark interest rate by 25 basis points to 7.25% in May. With headline inflation hovering near or below the lower 3% bound of its target range for eight straight months, some analysts believe further easing is warranted.
However, others expect the MPC to hold rates steady, citing the fragile global landscape and SARB’s cautious stance.
The committee’s decision on July 31 is likely to be closely watched by investors seeking clarity on how SARB will balance domestic price stability with external volatility.
Recall, we previously wrote South African rand dips as Trump proposes new tariffs on BRICS nations.