JOHANNESBURG – South Africa's central bank said on Wednesday the country's financial system is likely to remain resilient despite tighter financial conditions and monetary policy resulting from the Iran war.
Africa's largest economy began to gain momentum last year and investor sentiment was brightened by signs of fiscal discipline, but the Iran war has weakened the near-term outlook as it has hit oil markets, capital flows and household finances.
“The oil price shock is expected to continue to exert inflationary pressure, potentially leading to tighter monetary policy than before the conflict,” the South African Reserve Bank (SARB) said in its Financial Stability Review, a biennial check on the health of the financial system.
The SARB's quarterly projection model now suggests another interest rate hike in 2026, followed by a 25-basis-point hike at its policy meeting on May 28.
“The relief for interest rate-sensitive households is unlikely to be as anticipated at the start of the year,” the report said.
It says that beyond the immediate impact of the Middle East conflict, advances in frontier AI, particularly Anthropic's Cloud Mythos Preview, also pose risks to financial stability.
“Cyber risk has shifted from episodic and largely manageable events to persistent and compounding,” it says.
Other risks mentioned in the review include increased market uncertainty, unstable fiscal dynamics and capital outflows amid increased financial distress among households.
“Despite these risks, the South African financial system remains overall resilient,” the central bank said.
South Africa's foreign exchange reserves have exceeded 16% of GDP, the highest recorded level since the early 1960s, and the country meets all key reserve-adequacy metrics, the bank continued.