Rand tumbles as SARB hikes interest rates amid rising inflation risks

Johannesburg – The South African rand came under pressure on Wednesday as investors digested higher-than-expected inflation risks and a surprise-to-some policy decision by the South African Reserve Bank (SARB) to raise interest rates.

The rand fell about 1.3% against the US dollar to around R16.40 after the central bank increased its policy rate by 25 basis points to 7.25%, effective from 25 September.

The move followed data from Statistics South Africa showing that annual consumer inflation rose to 4.4% in August, from 4.3% in July.

The increase was driven mainly by housing and utilities and transport costs, with transport inflation reaching 8.8%. Rising fuel prices linked to global oil market pressures were contributing to renewed inflationary pressure.

The SARB said the inflation outlook had deteriorated, particularly because of higher fuel prices. Governor Lesetja Kganyago said “petrol is rising again” and warned that headline inflation would likely remain above 5% later this year and into early 2027 before easing as the fuel shock fades.

The bank now expects inflation to return to its 3% target towards the end of 2027, while South Africa’s economic growth forecast for 2026 has been lowered to 1.2%, following a 0.2% contraction in the second quarter.

Despite the rate increase, the SARB said its decision was unanimous and described its approach as measured amid significant global uncertainty.

The central bank also pointed to geopolitical tensions and disruptions to global oil supplies as major risks. It said food inflation remained favourable, while the rand had helped contain import prices.

The rate increase lifts the prime lending rate by 25 basis points to 10.75%, increasing borrowing costs for consumers and businesses.

Picture: Copilot

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Compiled by Betha Madhomu

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