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Money Market FundsThe MPC’s decision to raise the policy rate by 25bp to 7.25% comes after July’s pause and signals that the SARB is no longer prepared to rely on the existing degree of restrictiveness alone. The move is primarily precautionary. Domestic demand is not overheating, but repeated energy and currency shocks risk becoming embedded in services inflation and inflation expectations. August headline inflation edged up to 4.4% from 4.3%, while services inflation accelerated to 5.1%. Transport inflation remained particularly elevated at 8.8%. With inflation still above the 3% target, the SARB has chosen to act before these pressures become more persistent.
Our dashboard supports the decision, as it shows that inflation risks remain prevalent. Our Inflation Risk Indicator has eased from its June peak of 9.7 to 7.5. However, this remains an elevated reading, while market-based inflation expectations have turned higher. This suggests that the immediate inflation risk has risen, and that confidence in sustained convergence towards 3% is fading. The SARB had already identified upside inflation risks and elevated expectations in July, when two MPC members favoured an immediate hike.
The growth indicators argue against an aggressive tightening cycle. Credit growth remains comparatively resilient at 7.3, indicating that monetary conditions have not yet placed a severe constraint on lending. In contrast, the Leading Indicator shows that the growth outlook remains tepid, while the ABSA PMI score highlights weak manufacturing momentum.
The QPM projects a broadly stable policy rate for the remainder of 2026, followed by cuts as inflation moves back towards 3%. This suggests that the decision is an insurance hike rather than the start of an extended tightening cycle. However, further increases remain possible if global rates rise, the rand weakens or inflation expectations and wage growth deteriorate. The move should support the rand and reinforce monetary policy credibility, although it will place additional pressure on household consumption and corporate investment.
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