KEY POINTS

South African Reserve Bank Deputy Governor Fundi Tshazibana said risks to the inflation outlook remain elevated after the central bank unexpectedly kept its repo rate unchanged.
Tshazibana said the Monetary Policy Committee weighed volatile oil prices, geopolitical uncertainty, exchange-rate risks and inflation expectations before deciding to pause.
She said South Africa’s financial system remains resilient, with banks, insurers, pension funds and markets still adequately capitalized and liquid.
The Reserve Bank will stay data dependent in coming meetings, with policymakers assessing both quantitative indicators and qualitative feedback from price setters and other stakeholders.

South African Reserve Bank Deputy Governor Fundi Tshazibana said Friday that risks to South Africa’s inflation outlook remain elevated, after the central bank surprised markets by leaving its repo rate unchanged despite expectations for a 25 basis point cut.

Speaking in a CNBC Africa interview, Tshazibana said the South African Reserve Bank’s Monetary Policy Committee had to balance moderating inflation forecasts against a highly uncertain global backdrop, including oil-price volatility linked to conflict and broader external shocks.

“The numbers are telling us inflation is going to come down,” Tshazibana said. “But the risks to inflation are elevated.”

The hold caught markets off guard after many economists had expected the SARB to begin easing with a quarter-point reduction. Instead, policymakers opted to pause, arguing that uncertainty around the path of inflation required a more cautious approach.

Tshazibana said monetary policy decisions are made with a lagged horizon in mind, with policymakers assessing how current conditions are likely to affect inflation roughly three quarters ahead. That means the committee is not reacting only to the latest inflation print, but to whether shocks could generate more persistent price pressures over time.

She said one of the central concerns was the risk of so-called second-round effects from an oil-price shock. While a jump in oil prices can lift headline inflation in the near term, the central bank is more focused on whether that pressure spreads more broadly through the economy and becomes embedded in expectations and pricing behavior.

“When you make a monetary policy decision, you look through a shock,” Tshazibana said. “Our job is to assess whether there is persistence of inflation in the economy.”

She said the current environment had become especially difficult to read because geopolitical developments were changing quickly. Oil prices have been buffeted by war-related disruptions, shifting ceasefire dynamics and uncertainty around shipping routes through the Strait of Hormuz, all of which have complicated the inflation outlook.

At the same time, Tshazibana signaled that the SARB’s baseline forecast still points to easing price pressures over the medium term. She said inflation is expected to moderate after peaking in the first quarter, with the bank’s projections showing 2026 ending in the upper 4% range and average inflation for 2027 at about 3.8%.

That forecast path helps explain why the central bank chose not to tighten further. But it also did not feel confident enough to cut, given the balance of risks.

“Sometimes that requires that having made a decision, you stop, you study more, and then you will recalibrate what you have to do,” Tshazibana said.

The SARB’s decision underscored the central bank’s data-dependent approach, which Tshazibana said would remain the guiding principle in the second half of the year. She said policymakers would continue to assess growth, the output gap, labor-market conditions, exchange-rate moves, global central bank actions and inflation expectations before deciding whether to hike, hold or cut.

She also stressed that the committee does not rely solely on model-based forecasts. While econometric models provide a projected path for inflation and rates, she said uncertainty means policymakers must also apply judgment.

“You need the six human beings that come with different points of view,” Tshazibana said, referring to the MPC’s deliberations. “In an environment of uncertainty, there’s a lot that you cannot model exactly.”

Her remarks suggest the central bank is likely to remain cautious even as inflation appears contained on current readings. Tshazibana dismissed the idea that the MPC was working toward a fixed deadline for returning inflation to the lower end of its target range, saying each meeting would be driven by incoming information rather than a preset timetable.

“Data dependency,” she said when asked whether the SARB had a timeframe for steering inflation toward 3%.

Beyond monetary policy, Tshazibana used the interview to emphasize the Reserve Bank’s broader financial-stability mandate, particularly through the Prudential Authority, where she serves as chief executive officer.

She said South Africa’s financial system remains resilient despite a year marked by geopolitical tensions, trade disruption and market volatility. According to Tshazibana, banks, insurers, pension funds, asset managers and the country’s exchange are generally in a healthy position, supported by adequate capital and liquidity buffers.

“South Africa’s financial system is resilient,” she said. “Those entities are largely fairly healthy.”

Tshazibana said one test of financial health is whether institutions can continue to access funding and finance markets, either from shareholders or creditors. By that measure, she said, the bulk of South African financial institutions remain sound.

The Deputy Governor added, however, that resilience cannot be taken for granted. She pointed to governance weaknesses, geopolitical shocks, climate-related threats, digitalization, artificial intelligence and the growing use of virtual assets such as stablecoins as areas that require close supervision.

Her comments reflect the dual role increasingly played by central banks in emerging markets: managing inflation while also safeguarding the broader financial system against a widening set of risks.

“What keeps me awake at night is just ensuring that you are fast asleep at night, as customers of South Africa’s financial sector,” Tshazibana said, describing the Prudential Authority’s role in protecting depositors, policyholders and businesses from excessive risk-taking by financial institutions.

Looking ahead, she said the SARB would deepen engagement with businesses and other stakeholders to better understand pricing behavior and inflation expectations. That qualitative input, alongside hard data, is expected to play a larger role as policymakers navigate a murky global environment.

For investors, the message from Tshazibana was that the SARB is not ready to declare victory on inflation, even if the medium-term forecast still points lower. With risks still elevated and external conditions shifting rapidly, the central bank appears set to move cautiously from meeting to meeting.