Rand takes a beating
The South African rand took a knock on Wednesday (29 April) ahead of the US Federal Reserve’s announcement on US interest rates.
By 16h30, the rand was trading over 1.3% weaker against the dollar at R16.74.
Analysts noted that the unit was lower as investors awaited the Fed’s interest rate decision scheduled for the evening, local time.
The decision comes against a backdrop of an Iran war that shows little sign of imminent resolution.
The US dollar strengthened against the basket of currencies amid expectations that the Fed would hold interest rates steady.
There are growing concerns that elevated energy costs from the Iran War could morph from a one-off shock into broader underlying inflation.
Diplomatic efforts to end the Iran conflict have stalled, with US President Donald Trump rejecting Tehran’s latest proposal.
The United States said that Iran had told Washington it was in a “state of collapse” while working out its leadership.
The nearly two-month war in the Middle East has led to soaring fuel prices, eroding consumer confidence to a record low and wiping out market pricing for rate cuts.
Nedbank economists said in a research note that markets broadly expect policy rates to be held steady, reflecting a continued “wait-and-see” approach amid elevated geopolitical uncertainty and mixed inflation dynamics.
“The Fed is expected to keep the Fed funds target rate unchanged at 3.75%, as disinflation progress remains uneven and activity data continues to surprise modestly to the upside,” the bank’s economists said.
For South Africa, the Reserve Bank opted to hold rates at its March meeting—which followed the onset of the war on 28 February—with warnings that rate hikes could follow.
This is a sharp turn from expectations before the war, where economists had anticipated at least two more interest rate cuts this year.
Now, the best-case scenario is that interest rates will see a cut at the end of the year if the war ends quickly.
However, the base case is for a long hold, with the downside view—a much longer war—being two interest rate hikes ahead.
Inflation pressure will determine the way forward
The key factor being examined is how the war and rising fuel costs will affect inflation.
With oil prices again shooting past $110 a barrel, there are concerns that inflationary pressures will persist, pushing CPI and inflation expectations out of synch with the SARB’s 3% target.
Fuel prices shot up in April 2026 by R3 per litre for petrol and R7 per litre for diesel. Prices for May are also building for another R2/l and R5/l increase.
Fuel consumers will be spared the reintroduction of the government’s fuel levy until June, when the R3.00/l cut to taxes will be added back to the price in parts.
However, the outlook for fuel prices remains dim, and the inflationary impact is expected to feed through the entire supply chain, across industries.
Higher fuel prices will translate into higher transport expenses more broadly, which act as input costs for production, leading to higher food prices, among other second-round effects.
Because of rising energy costs, inflation is expected to spike to around 4% in April. While this is still within the SARB’s tolerance band, higher energy prices for longer risk pushing inflation higher.
Reserve Bank Governor Lesetja Kganyago has noted that the bank’s Monetary Policy Committee won’t hesitate to respond to this by hiking interest rates.
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