{"id":852746,"date":"2026-03-03T14:00:00","date_gmt":"2026-03-03T12:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=852746"},"modified":"2026-03-03T13:51:02","modified_gmt":"2026-03-03T11:51:02","slug":"bad-turn-for-interest-rate-cuts-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/852746\/bad-turn-for-interest-rate-cuts-in-south-africa\/","title":{"rendered":"Bad turn for interest rate cuts in South Africa"},"content":{"rendered":"\n

The escalating conflict in the Middle East could present a significant risk to South Africa\u2019s inflation outlook, which could spell bad news for interest rate cuts in the near future.<\/p>\n\n\n\n

Interest-rate traders have priced in a chance of a South African interest-rate hike later this month<\/strong> as the Iran conflict pushed oil prices higher, reviving concerns about inflation.<\/p>\n\n\n\n

Forward-rate agreements now anticipate a 6-basis-point rate increase at the March 26 policy meeting, or a 24% chance of a 25-basis-point hike.<\/p>\n\n\n\n

As recently as Friday, they were pricing in almost a 30% chance of a 25-basis-point cut.<\/p>\n\n\n\n

The market is also less confident of monetary easing over the rest of the year. It\u2019s now pricing in just 15 basis points of easing by year-end, down from 39 on Friday.<\/p>\n\n\n\n

Brent crude oil rose above $80 a barrel on Tuesday as the US and Israel stepped up their attacks against Iran.<\/p>\n\n\n\n

That risks pushing inflation in South Africa further away from the central bank\u2019s 3% target. The weakening rand could add to price pressures.<\/p>\n\n\n\n

Policy makers \u201cwould most likely look through this if it\u2019s a temporary shock, and not raise rates,\u201d said Annabel Bishop, chief economist at Investec.<\/p>\n\n\n\n

Persistently higher inflation, however, would force the central bank to tighten, though that is a \u201csevere downside\u201d scenario, she said.<\/p>\n\n\n\n

The rand extended declines on Tuesday, weakening 1.2% to 16.2937 per dollar as of 12h05 in Johannesburg. That brings its two-day drop to 2.2%.<\/p>\n\n\n\n

Stanlib Chief Economist Kevin Lings added that the weekend attack by US and Israeli forces on Iran, and the prospect of further escalation, introduces \u201csubstantial unknowns\u201d for global markets.<\/p>\n\n\n\n

He noted that while the timing of the strike was not entirely unexpected\u2014given the visible build-up of US military forces and stalled negotiations\u2014the broader trajectory of the conflict remains unclear.<\/p>\n\n\n\n

\u201cThe other unknown is, is this going to broaden out and include many more countries? If that happens, this becomes a significant regional conflict,\u201d Lings cautioned.<\/p>\n\n\n\n

Threat to one of South Africa’s major inflation components <\/h2>\n\n\n
\n
\"\"<\/a>
Stanlib Chief Economist Kevin Lings<\/em><\/figcaption><\/figure><\/div>\n\n\n

From a market perspective, he said investors are already reacting. \u201cThere\u2019s been a move higher in some safe haven assets, particularly gold,\u201d although he described the rise as \u201cfairly muted\u201d.\u00a0<\/p>\n\n\n\n

This is because gold prices were already elevated. Oil prices, however, have moved higher more decisively.<\/p>\n\n\n\n

The key issue for South Africa is what this means for supply disruptions and, ultimately, domestic inflation and interest rates.<\/p>\n\n\n\n

Lings stressed that South Africa has made significant progress in lowering inflation, with the rate currently at 3.5%, close to the 3% target. <\/p>\n\n\n\n

\u201cGetting inflation down to the 3% target is a significant achievement so far. The progress we\u2019ve made so far, I think, has been exceptional,\u201d he said. <\/p>\n\n\n\n

However, he warned that petrol prices pose a clear upside risk. \u201cRight now the petrol inflation rate is about -10% and that\u2019s incredibly low,\u201d he said.<\/p>\n\n\n\n

While this has helped suppress overall inflation, it also creates a low base effect. \u201cIf there were to be a spike in the oil price or currency weakness, then you\u2019ve got some significant upside risk \u2014 and that is clearly manifesting now.\u201d<\/p>\n\n\n\n

According to Lings, the under-recovery on South Africa\u2019s petrol price was already around 75 cents a litre before the latest escalation. <\/p>\n\n\n\n

\u201cAs things stand, we\u2019re facing a fairly hefty price increase going into the next couple of months,\u201d he said. <\/p>\n\n\n\n

With oil prices rising further and the potential for currency weakness, \u201cwe\u2019re looking at a meaningful escalation in a key component of our inflation basket.\u201d<\/p>\n\n\n\n

He added that if the Reserve Bank sees that a key element of the inflation numbers is starting to move up, then they may become even more hesitant to cut rates and become more conservative.<\/p>\n\n\n\n

\u201cThe risk for us is that interest rates simply remain unchanged for a longer period of time and we don\u2019t get the benefit in the short term of interest rates moving lower and therefore reducing the cost of capital.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The escalating conflict in the Middle East could present a significant risk to South Africa\u2019s inflation outlook, which could spell bad news for interest rates. <\/p>\n","protected":false},"author":92,"featured_media":852749,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[1498,853,1482,21912],"class_list":["post-852746","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-investec","tag-south-africa","tag-stanlib","tag-the-south-african-reserve-bank-sarb"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/852746","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/92"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=852746"}],"version-history":[{"count":5,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/852746\/revisions"}],"predecessor-version":[{"id":852763,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/852746\/revisions\/852763"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/852749"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=852746"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=852746"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=852746"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}