The South African Reserve Bank's Monetary Policy Committee (MPC) is set to announce its latest interest rate decision in Pretoria on Thursday afternoon as inflationary pressures continue to weigh on the economy.
The central bank last increased the repo rate by 25 basis points in May, taking it to 7%, while the prime lending rate rose to 10.5%.
The decision comes after Statistics South Africa reported that annual consumer inflation climbed to 5% in June, exceeding analysts' expectations and remaining well above the Reserve Bank's 3% inflation target.
Higher fuel prices, driven by the conflict between the United States and Iran, have been identified as a key contributor to the recent increase in inflation.
Standard Bank's Head of Macroeconomic Research, Elna Moolman, said the Reserve Bank faces a difficult balancing act.
She noted that while inflation is expected to remain above the bank's 3% target in the coming months, South Africa has already responded more aggressively than many other central banks by raising interest rates following the outbreak of the Iran conflict.
Moolman said domestic interest rates are already relatively high, making any further increases a challenging decision for policymakers.
She added that if the MPC opts to raise rates again, it could mark the end of the current tightening cycle. According to Moolman, once the conflict subsides and oil prices decline in a sustained manner, the Reserve Bank may be in a position to begin reversing some of the recent interest rate hikes.