The South African Reserve Bank’s (SARB) decision to raise the repo rate by 25-basis points, taking the repo rate to 7.25% and the prime lending rate to 10.75%, comes amid an uncertain global backdrop.
With just one interest rate announcement remaining this year, Rhys Dyer, CEO of the ooba Group says the increase is a reminder that, despite improving domestic inflation, global inflationary risks continue to weigh heavily on the interest rate outlook.
“While any increase in borrowing costs are disappointing for consumers and the property market at large, it is important to view today’s decision in context,” says Dyer. “Barring the 25-basis point interest rate hike in May this year, the previous increase was in May 2023, reflecting what has otherwise been a relatively stable and supportive bank lending environment.”
Overall, South Africa’s economic growth stalled in Q2 ’26, with GDP growth now forecast to average just 1.2% this year. “While 1.2% remains modest, it would still represent a 0.1 percentage point improvement on last year and more than double the growth recorded in 2024.”
Annual consumer inflation edged up to 4.4% in August from 4.3% in July, slightly softer than market expectations. Encouragingly, core inflation (excluding food and fuel prices) eased to 4.1% last month, pointing to a further moderation in underlying price pressures.
“Inflation remains fairly well contained for now and continues to move broadly in the right direction, offering some relief for households even as global price risks persist,” says Dyer.
Latest BER survey
Adding to the more encouraging domestic inflation signals, the latest BER survey shows that inflation expectations eased in the third quarter. Professional expectations stabilised or edged lower across the forecast horizon, while household expectations fell sharply. This suggests that inflationary pressures are not becoming entrenched domestically.
However, the external backdrop remains challenging. Global pressures have intensified in recent weeks, with Brent crude pacing towards $110 a barrel amid renewed US-Iran hostilities, raising fresh inflation concerns and the prospect of further petrol and diesel price increases next month.
At the same time, the US Federal Reserve has raised interest rates by 25-basis points and the European Central Bank has also increased rates by 25-basis points and adopted a more hawkish stance amid renewed inflation risks.
“The SARB is navigating an increasingly difficult balance between subdued domestic growth and renewed external inflationary pressures. For homeowners, today’s increase will add to monthly borrowing costs and place some pressure on affordability. However, the relatively modest scale of the increase, together with continued competition among lenders, should help cushion some of the impact on the housing market.”
Robust Bank Lending Help Cushion Rate Hike
Strong competition among the country’s major lenders continues to support housing demand and provide qualifying homebuyers with more favourable financing. “In August, we saw a near record average interest rate of 0.75% below prime, compared with an average of 0.64% below prime from January to July 2026. Banks continue to show a healthy appetite for home loan business, translating into higher approval rates, competitive lending rates and lower deposit requirements,” says Dyer.
Looking ahead he says, “Much of what happens in the months to come will now depend on the trajectory of inflation and global developments. While today’s increase introduces a degree of caution into the outlook, the fundamentals of the housing market remain firm and buyers remains supported.”
