South African Rand Firms Slightly

The South African rand edged up to around 16.5 per USD, helped by a softening US dollar and rising prices of key precious metals, particularly gold and PGMs. Meanwhile, persistent geopolitical tensions in the Middle East kept oil prices elevated, fuelling inflation concerns and raising the prospect of interest rates remaining higher for longer. South African Reserve Bank Governor Lesetja Kganyago told Reuters on the sidelines of the annual IMF–World Bank meetings in Bangkok that rising global energy prices and food costs continue to pose upside risks to domestic inflation. He noted that inflation may not return to the target until 2028, reinforcing the case for maintaining a restrictive monetary policy following last month’s 25-basis-point rate hike to 7.25%. Attention is now shifting to Finance Minister Enoch Godongwana’s medium-term budget policy statement next week, as investors look for clues on the country's fiscal situation.

The South African rand weakened to around 16.6 per US dollar, nearing its July lows, as hotter-than-expected US inflation data for September boosted expectations of a Federal Reserve rate hike later this month, strengthening the dollar and weighing on emerging-market currencies. Lower prices for key precious metals, particularly gold and platinum-group metals (PGMs), added to the pressure by threatening export earnings. Meanwhile, escalating hostilities between Saudi Arabia and Iran-backed Houthi rebels pushed oil prices higher, raising import costs for South Africa, a net oil importer. The South African Reserve Bank recently warned that higher fuel and transport costs could spill over into broader prices, wages and inflation expectations, making inflationary pressures more persistent. This complicates the SARB's efforts to bring inflation back to its 3% target and adds uncertainty to the economic outlook ahead of National Treasury’s Medium-Term Budget Policy Statement on October 21.

The South African rand rose to just below 16.5 per US dollar, near its highest since late September, mainly supported by a softer US dollar and lower oil prices. Meanwhile, attention remained focused on geopolitical developments, the inflation outlook and the central banks' moves. The South African Reserve Bank (SARB) recently cautioned that second-round effects could cause higher fuel and transport costs to feed through to broader prices, wages and inflation expectations. The risk of a severe El Niño event have added to upside risks, particularly for imported and food inflation. Fuel prices surged to record highs following the October 7 adjustment, surpassing previous peaks recorded in June and complicating the central bank’s efforts to bring inflation back to its 3% target. The central bank raised the rates by 25 bps to 7.25% last month, while markets are pricing in two more increases over the next six months.