South African Rand Remains Under Pressure

The South African rand was little changed around 17 per USD, hovering near the lowest since December 2025, as ongoing risk aversion persisted amid heightened Iran's war uncertainty while markets digested the South African Reserve Bank’s more hawkish stance. Policymakers noted that inflation was well-contained prior to the conflict, reaching the 3% target in February, but pressures from higher fuel prices and a weaker currency are expected to push it higher. Inflation forecasts were revised upward for both 2026 and 2027, while GDP growth projections remained unchanged. The central bank also updated its policy outlook, now expecting only one rate cut rather than two, and considered two Iran conflict scenarios, one lasting two months and the other one year, both pointing to higher interest rates.

The South African rand traded around 17.1 per USD, close to November 2025-lows, as persistent uncertainty around the duration of the Iran war weighed on risk appetite. The rand has faced increased volatility since the onset of the Middle East crisis in late February, given South Africa’s sensitivity to oil price fluctuations. The main risk is that a prolonged war and higher oil prices could push inflation higher, challenging central bank's previous efforts to keep it under control. Inflation is currently around the new 3% target, but it is expected to move higher in the next months. Beyond oil, increases in electricity and food prices are likely to add upward pressure on inflation. The South African Reserve Bank is widely anticipated to keep its policy rate unchanged at 6.75% this week, as policymakers navigate one of the most uncertain economic environments in recent years.

The South African rand rose to around 16.7 per USD, pulling away from recent four-month lows of 17.2 per USD, as risk aversion moderated after US President Trump said the US would postpone strikes on Iranian power plants for five days. The decline in key precious metals, particularly gold, also eased. The rand has faced increased volatility since the onset of the Middle East crisis in late February, pressured by global risk aversion and oil price swings. The main concern is that a prolonged war and higher oil prices could push inflation higher in energy-importing South Africa. Attention turns to the upcoming SARB's decision, the second of the year, with a hold widely anticipated. The Iran conflict has complicated the policy outlook, intensifying the balancing act between supporting growth and maintaining inflation near the 3% target. Before the recent shock, inflation expectations were showing signs of becoming better anchored; they are now expected to rise in the near term.