Bank of America forecasts South African interest rate hike in May amid Middle East energy shock

Bank of America expects SARB to hike rates to 7% in May 2026 as fuel and food prices rise following Middle East conflict and energy resource targeting.

By: AXL Media

Published: Apr 24, 2026, 8:29 AM EDT

Source: Information for this report was sourced from BusinessTech

Geopolitical Tensions Trigger Energy Driven Inflation

The South African Reserve Bank is likely to implement an interest rate hike in May 2026 as a direct response to inflationary pressures stemming from the Iran War. According to Bank of America, the conflict led to retaliatory strikes on Middle Eastern energy resources, causing global oil prices to surge. This geopolitical shock has already manifested at South African fuel pumps, where petrol prices rose by R3 per litre and diesel by R7 per litre in April. While a ceasefire has been established, the persistent nature of these higher energy costs is expected to drive the national inflation rate toward 3.7% in the immediate term.

Breaching the Reserve Bank Tolerance Band

Financial analysts predict that the Consumer Price Index will likely hit 4.1% if fuel costs experience an additional 10% spike in May. Such a move would push inflation beyond the South African Reserve Bank's one percentage point tolerance band, which is anchored around a 3% target. Bank of America suggests that a policy rate adjustment to 7% is necessary to anchor long term inflation expectations and maintain real interest rates at approximately 3%. The central bank faces the challenge of managing second round effects, where higher transport costs inevitably filter into the pricing of food and other essential goods.

Fertiliser Costs Threaten Long Term Food Security

The agricultural sector remains highly vulnerable to the current energy crisis, as fuel and fertiliser account for roughly 50% of grain production input costs. South Africa currently relies on imports for 80% of its fertiliser needs, and prices for these commodities have risen by 15 to 20 percent since early March. Bank of America warns that while food prices currently remain contained, a failure of fertiliser prices to moderate before the October 2026 planting season could lead to a significant spike in food inflation. These elevated input costs act as a persistent inflationary risk rather than a temporary market shock.