The rand’s rally against the US dollar fuels uncertainty over SARB’s rate call, with economists split between a cut or a hold.
SA Interest Rate: As South Africa edges closer to a critical monetary policy decision, the country’s financial markets are caught in a tug-of-war between domestic economic concerns and global currency dynamics. The South African Reserve Bank’s (SARB) upcoming interest rate announcement on Thursday, 29 May 2025, is surrounded by heightened anticipation and uncertainty, not least because of the rand’s recent surge against a stumbling US dollar.
A Resilient Rand… For Now
The South African rand continues to enjoy a strong run in global currency markets, trading at R17.87 to the US dollar on Monday, 26 May. This marks a significant recovery from the R19.23 levels seen earlier this year. But the story isn’t so much about a strengthening rand as it is about a weakening dollar.
According to Investec chief economist Annabel Bishop, this recent momentum is largely due to the US government’s deliberate moves to weaken its own currency for trade advantages, with President Donald Trump’s tariff-heavy rhetoric acting as a key catalyst. As the US dollar index dropped from 110.0 to 98.9 since January, the rand appreciated in response — but only relative to the dollar.
Against the euro and British pound, the rand has in fact depreciated, moving from R19.51 to R20.37 versus the euro and from R23.23 to R24.26 against the pound — painting a more complicated picture of currency performance.
“This means that the rand itself isn’t strengthening; rather, it is the dollar that is weaker,” said Bishop.
Inflation, Growth, and the Uncertain SARB Decision
While the rand might be enjoying its moment in the sun, South Africa’s inflation remains outside of the Reserve Bank’s target range, and economic growth forecasts have shrunk to a worrying sub-1.5%.
This sets the stage for a tough decision at the upcoming Monetary Policy Committee (MPC) meeting. Market watchers and economists remain divided on what SARB’s next move should be.
On one hand, forward rate agreements and the Bloomberg consensus are pointing toward a 25 basis point cut — a move that could boost growth and ease pressure on debt holders. On the other hand, local analysts believe that holding rates steady might be a more cautious choice given the global uncertainty and mixed domestic signals.
Bishop highlighted another complexity: if the inflation target is lowered, as is reportedly being considered by SARB and National Treasury’s technical teams, it could effectively shut the door on further rate cuts.
“Lengthy signalling of a lowering of the inflation target, but no announcement, has led to expectations of an interest rate cut,” Bishop noted.
But lowering the target could also support a stronger rand by widening the interest rate differential with the US. However, this would also increase market uncertainty and could potentially require the Reserve Bank to raise rates again later — an equally risky move.
Market Sentiment and the Road Ahead
While the US economy is expected to grow more slowly this year, recession fears have eased, with only a 40% probability of contraction reported in recent assessments. This has made global investors less risk-averse, which benefits emerging markets like South Africa — but it also leaves the rand vulnerable to volatility.
Economists say this week’s SARB decision is particularly tricky because previous votes have not been unanimous, and another split decision is likely.
With inflation expected at 4.5% year-on-year in the medium term, whether SARB chooses to cut rates now or hold off will have significant implications for consumers, businesses, and the currency alike.
What to Expect on 29 May
The Reserve Bank’s MPC will announce its rate decision on Thursday, 29 May 2025. Until then, markets remain jittery, and all eyes are on Pretoria.
Whether SARB opts for a proactive cut or chooses caution amid volatility, one thing is clear: South Africa’s economic path is being shaped as much by Washington’s policy swings as it is by our own.
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