The South African Reserve Bank building in Pretoria. The central bank will probably lift the policy rate by 25 basis points at the May 28 and July 23 gatherings of its monetary policy committee, implying that it “will take no chances in terms of meeting its medium-term inflation target,” BNP’s Jeffrey Schultz said.

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The South African Reserve Bank will likely raise interest rates at its next two meetings to rein in inflation that’s set to surge because of energy supply-side shocks caused by the war in Iran, BNP Paribas said.

The central bank will probably lift the policy rate by 25 basis points at the May 28 and July 23 gatherings of its monetary policy committee, implying that it “will take no chances in terms of meeting its medium-term inflation target,” BNP’s Jeffrey Schultz and colleagues wrote in a note on Tuesday. It “will act swiftly to preserve its hard-won credibility gains under its new 3% inflation target,” they said.

Forward rate agreements, used to speculate on borrowing costs, are almost fully pricing in a quarter-point rate increase at the next MPC meeting and two more hikes of the same margin by the end of the year.

The central bank in March forecast inflation will average 4% in the second quarter and 3.7% in the following three months. It kept rates at 6.75% at that meeting to assess the impact of the Middle East conflict on the outlook.

“Our numbers currently place us comfortably above what the SARB had forecast back at its March monetary policy committee,” they said. BNP’s inflation profile for South Africa indicates a prolonged and “more persistent breach” of the 3% target and its 1 percentage point tolerance band from the second quarter, he said.

Oil prices have surged almost 60% since the Iran war erupted on February 28 and effectively closed the Strait of Hormuz, a key chokepoint for about a fifth of global crude and liquefied natural gas flows. Domestic diesel prices have jumped to a record and petrol costs will rise to a near four-year high on Wednesday.

“Regardless of whether we see a more feasible and sustainable ceasefire agreement reached in the coming weeks, a lot of the structural short-term damage to energy supply, inflation and expectations has already been done for 2026,” Schultz and his colleagues wrote.

Governor Lesetja Kganyago said this week that policymakers are “very carefully” monitoring incoming data to guide their next rate decisions.

“Although we cannot do much about higher inflation right now, we are very committed to getting inflation back to 3%, just where we had it before the shock hit,” he said.

The inflation rate edged up to 3.1% in March from 3% a month earlier and is expected to spike in the coming months because of higher energy and food prices.