RFA Breakfast Paper - May 28, 2026
South Africa Hikes Rates to 7% as Inflation Risks Intensify
The South African Reserve Bank raised its benchmark repo rate by 25 basis points to 7% at its May 2026 meeting, marking the first-rate hike since 2023 and matching market expectations. Four of the six MPC members supported the increase, while two voted to keep rates unchanged. Policymakers said inflation risks had risen significantly due to the ongoing Middle East conflict, warning that overlapping shocks could generate broader second-round inflation effects. The move comes after South Africa’s annual inflation rate accelerated to 4% in April from 3.1% in March, reaching the upper end of the central bank’s target range. The SARB also revised its inflation outlook upward, now forecasting inflation at 4.4% for 2026 and 3.7% for 2027, compared with earlier projections of 3.7% and 3.3%, respectively. At the same time, the bank downgraded growth expectations, lowering its GDP forecast to 1.2% for 2026 and 1.7% for 2027, citing weaker economic momentum and heightened geopolitical uncertainty. Notably, the policy statement included three alternative risk scenarios, all suggesting that additional monetary tightening may still be necessary if inflation pressures persist.
U.S Equities Extend Gains Following PCE Release and GDP Revision
U.S. equity markets closed higher on Thursday as investors assessed a closely watched inflation report alongside fresh economic data that strengthened expectations for a patient Federal Reserve. April PCE inflation, the Fed’s preferred inflation gauge, came in broadly in line with forecasts, with headline PCE rising 0.4% month-on-month and 3.8% year-on-year, while core PCE increased 0.24% on the month and 3.3% annually. Although inflation remains above the Fed’s 2% target, the data showed no significant upside surprise, helping ease concerns about the need for further monetary tightening. Meanwhile, initial jobless claims remained relatively stable at 215,000, highlighting continued resilience in the labor market, while first-quarter GDP growth was revised lower to 1.6% as consumer spending and business investment softened. Markets interpreted the inflation and labor market data as reinforcing expectations that the Federal Reserve will keep interest rates unchanged in the near term. Bond yields edged lower, with the 10-year Treasury yield closing at 4.45%, while oil prices pared earlier gains after reports that U.S. and Iranian negotiators agreed to extend a ceasefire and continue discussions on Iran’s nuclear program. Overall, the combination of stable inflation and moderating economic growth helped support investor sentiment.
NGX Returns from Eid Break with Capital Raising in Focus
With the Nigerian equity market closed for the Eid holiday over the past two trading sessions, investors spent the break assessing key developments that could shape sentiment when trading resumes. Nigeria's capital market remains active, with concurrent fundraising activities across sovereign securities, commercial papers, rights issues, and private placements. The increased issuance activity highlights sustained demand for capital and growing investor participation ahead of the transition to a T+1 settlement regime next week. Corporate fundamentals also provided encouragement, as 89 listed companies remitted a combined ₦579.78 billion in company income tax during the first quarter of 2026, representing a 10.6% year-on-year increase and signalling continued resilience in corporate earnings despite a challenging macroeconomic environment. External developments also remained in focus, as fresh U.S. strikes on Iranian targets reignited volatility in global oil markets. With Nigeria's fiscal position and foreign exchange earnings closely tied to crude oil prices, investors are likely to monitor developments in the Middle East and broader energy markets as trading resumes.
