The South African Reserve Bank (SARB) has indicated that significant global uncertainty has constrained the scope for monetary policy relaxation.

The SARB emphasized in its biannual monetary policy review that the global trade war initiated by U.S. President Donald Trump poses significant risks to global economic activity, with anticipated adverse effects for South Africa.

Global trade apprehensions and domestic political instability have eroded confidence in the medium-term outlook, despite projections indicating that inflation in South Africa is expected to decrease to 3.6% in 2025 from 4.4% the preceding year.

Due to apprehensions over U.S. trade policy and domestic disputes over the national budget, the SARB maintained its benchmark interest rate at 7.50% in March.

The steepening of the domestic yield curve in early April indicates market risk aversion and concerns over the stability of the coalition administration.

A proposed increase in VAT is one of the most contentious budget proposals, since its implementation may incrementally elevate inflation by 0.2% annually.

The governing party, the African National Congress, may consider reducing the VAT rates.