SARB Decision Becomes the Defining Local Event

Today’s SARB decision presents policymakers with a particularly difficult combination of weak growth and renewed inflation pressure.

More than 72% of economists surveyed by Reuters expect a 25-basis-point increase, with other consensus surveys pointing in the same direction. At the same time, August CPI is expected to rise to 4.5% year-on-year, while October’s anticipated fuel-price increases threaten to keep headline inflation further above the Bank’s 3% objective.

The argument for tightening rests less on an overheating domestic economy and more on protecting the inflation framework before external price pressures become embedded.

Recent rate increases from the Federal Reserve, ECB and Bank of Japan have raised the global cost of capital. That does not mechanically require the SARB to follow, but it increases the risk that an inadequate domestic interest-rate premium eventually weighs on the rand.

A weaker rand would then reinforce imported inflation through fuel, food and other traded goods.

This creates an uncomfortable feedback loop in which South Africa’s weak growth environment argues for caution while the currency and imported-inflation channels argue for restraint.

Weak Growth Makes the Decision More Complicated

There is little evidence that South Africa is experiencing excess domestic demand.

GDP contracted 0.2% quarter-on-quarter in Q2, August’s manufacturing PMI fell to 45.8, and third-quarter business confidence slipped to 38. The leading indicator also declined 0.9% month-on-month in July to 118.2, with annual growth slowing to 2.3% from 4.5%. Six of the underlying components weakened, including residential-building approvals and real M1 momentum.

Those figures point towards weaker rather than stronger demand and investment.

Higher interest rates therefore come with a real economic cost. They make borrowing more expensive for households and companies while an already weak economy is struggling to generate investment.

The difficulty is that cheaper money cannot repair ports, municipal infrastructure, electricity networks or freight systems either.

Structural constraints depress the economy’s supply capacity, meaning monetary accommodation cannot sustainably compensate for inadequate infrastructure or low productivity. It may instead sustain consumption while inflation remains elevated.

The SARB therefore needs to distinguish between an unavoidable relative increase in energy prices and persistent general inflation. Monetary policy cannot produce cheaper fuel, but it can influence whether higher fuel prices eventually feed into wages, services, expectations and the exchange rate.

Inflation Expectations Still Provide Some Room for Caution

The strongest argument against an immediate hike is that there remains limited evidence of a significant second-round inflation process.

Five-year inflation expectations have eased to around 4.0%, while recent surveys have not shown the sort of unanchoring that would normally make aggressive tightening unavoidable.

That is significant because central banks can afford to treat a supply shock more patiently when households, businesses and wage negotiators continue to believe inflation will eventually stabilise.

Today’s CPI composition therefore matters as much as the headline number.

A rise to 4.5% driven largely by fuel would strengthen the argument for a measured response. A broader acceleration across services and underlying inflation would make the case for tightening considerably stronger.

The SARB’s communication will consequently matter almost as much as the rate decision itself.

A 25-basis-point hike accompanied by conditional guidance would reinforce credibility without committing the Bank to a long sequence of additional increases.

Rand Strength Raises the Stakes for the SARB

The rand’s performance going into the decision has been unusually strong.

USD/ZAR traded around 16.1850 this morning, while EUR/ZAR was near 18.49 and GBP/ZAR around 21.55. That improvement occurred even as the dollar regained ground against most major currencies.

This resilience has created both an opportunity and a risk for the SARB.

A hike could reinforce the existing currency support by preserving South Africa’s carry advantage and signalling that policymakers intend to protect the new inflation framework.

A hold carries greater event risk because the FX market already appears positioned for tighter policy.

If investors interpret unchanged rates as insufficiently restrictive, the rand could quickly give back part of its recent strength.

That does not mean a hold would automatically result in significant depreciation. A sufficiently dovish inflation outcome combined with falling oil could provide justification for patience. But the burden on the SARB’s communication would be considerably greater.

OIS Market Now Prices More Than a 70% Chance of a Hike

Interest-rate markets have moved decisively in recent sessions.

The shortest-dated OIS instruments now imply more than a 70% probability of a 25-basis-point increase, compared with a much less decisive position only a few sessions ago. The three-month OIS effectively has one full hike priced before year-end, with the market increasingly expecting that adjustment to arrive today.

The FRA curve reinforces the message.

The 1×4 FRA is around 7.21%, the 3×6 around 7.38%, the 6×9 around 7.70% and the 9×12 around 7.72%.

These levels suggest that even after today’s likely increase, markets expect policy to remain restrictive and continue allowing for additional tightening further out.

The important question is whether today’s guidance validates that path.

If the SARB hikes but stresses that future decisions remain highly data-dependent, some of the additional tightening priced further along the curve could be removed.

If policymakers remain strongly focused on the 3% target and October fuel-price shock, those expectations could persist.

Bond Auction Shows a Dramatic Return of Demand

Yesterday’s South African government bond auction delivered one of the strongest results of the year.

Total bids surged 77.7% to R14.665 billion from R8.255 billion, while average cover climbed to 5.8 times, the second-highest level recorded this year and substantially above the 4.1-times annual average.

The improvement is noteworthy because it occurred despite tighter international monetary policy following the Fed’s rate hike.

Falling oil prices and lower benchmark yields have clearly improved sentiment, while investors may also be gaining confidence that central banks will respond sufficiently firmly to prevent the recent energy shock from becoming entrenched inflation.

The result should nevertheless not be interpreted as evidence that inflation concerns have disappeared.

Rather, investors appear increasingly comfortable buying South African bonds at prevailing valuations when monetary policy remains credible.

Investors Were Willing to Extend Duration

The longer maturity profile of the auction makes the outcome even more interesting.

The R2038 attracted R5.66 billion in bids and achieved exceptional cover of 6.7 times. The R2039 recorded 4.9-times cover, while the R2042 generated 5.7 times.

That represents a considerable improvement in demand further along the curve.

Pricing still shows that investors remain selective.

The R2038 and R2039 cleared below preceding secondary-market yields, while the longer R2042 required approximately 8 basis points of concession.

This suggests investors are prepared to take duration, but only when adequately compensated.

The distinction becomes particularly important after a strong rally in longer-dated bonds. Fifteen-year yields have fallen more than 20 basis points over the past week, roughly twice the decline in 10-year yields.

A successful SARB decision could extend that improvement, particularly if it reduces longer-term inflation risk without creating expectations of an unnecessarily aggressive hiking cycle.

US Treasury Investors Are Starting to Question the Hawkish Consensus

The US Treasury market remains caught between persistent inflation risk and growing concern that markets may be pricing too many Fed hikes.

The US 10-year yield is around 4.96%, while the 2-year sits near 4.76%.

Oil and inflation have pushed yields sharply higher over recent months, but positioning is becoming more constructive.

JPMorgan’s latest survey shows outright Treasury longs at their highest level since November, while short positioning has declined. SOFR options also show greater demand for trades that benefit from a shallower-than-currently-priced tightening path.

The message is that investors increasingly see a risk that the market has gone too far.

The Fed remains hawkish, but monetary tightening works with a lag. If manufacturing, employment or household demand weaken more quickly than expected, the number of additional rate increases ultimately delivered could fall short of current pricing.

That possibility remains an important downside risk for the dollar.

US Manufacturing Shows Early Signs of Softening

The latest Richmond Fed survey provides some evidence that tighter conditions may already be affecting activity.

The manufacturing index fell to -2 in September from +4, recording its first contraction since February. New orders and shipments fell into contraction while employment actually improved.

The combination is interesting.

Firms are experiencing weaker current demand and compressed margins as input prices rise faster than selling prices, but they are still hiring and appear relatively confident about the future.

Respondents also expect price pressure to ease over the coming year.

That gives the Fed a mixed signal.

Inflation remains too high today, but some of the forward-looking activity indicators are beginning to suggest that restrictive financial conditions are working.

The October national ISM manufacturing survey will therefore carry additional importance.

Fed Officials Remain Firmly Hawkish

Despite softer manufacturing data, Federal Reserve officials continue to signal that the inflation problem may require additional tightening.

Recent commentary has emphasised that repeated energy, tariff and supply-chain shocks cannot simply be ignored indefinitely if they become incorporated into expectations. Demand pressures, including strong investment in AI infrastructure and resilient services activity, are also increasingly being identified as part of the inflation problem.

This marks an important change from the earlier view that inflation could largely be explained by temporary supply factors.

If demand is also contributing, then tighter monetary policy has a clearer role to play.

The tension for markets is that the Fed may need to continue tightening even as parts of manufacturing and household activity begin slowing.

That is the essence of the current global stagflation risk.

Oil Falls Below $100 as Diplomacy Gains Momentum

The most encouraging global macro development remains the energy market.

Brent has fallen to approximately $99.25 per barrel, while WTI is around $90.27, leaving Brent roughly 9% lower over the previous five sessions.

The decline reflects improving hopes that diplomatic engagement between Washington and Tehran could produce a meaningful de-escalation.

President Trump has described discussions with Iranian representatives in New York as productive, while Iran has signalled that the Strait of Hormuz could reopen relatively quickly if the US blockade is lifted. The supplied material also notes that major disagreements around sanctions and nuclear commitments remain unresolved.

Because I could not independently verify these current political developments through web search this morning, those diplomatic details are presented here as contained in the supplied 23 September material rather than as independently confirmed developments.

For markets, the economic significance is clear regardless of the political interpretation.

A durable reopening of Hormuz would remove a substantial geopolitical premium from crude and significantly improve the inflation outlook for energy-importing economies such as South Africa.

Oil Still Carries Significant Upside Risk

The correction should not be mistaken for complete normalisation.

Brent remains more than 60% higher this year, while Hormuz traffic is still constrained and the Middle East conflict remains unresolved. Saudi Arabia’s plan to restore exports through its 7-million-barrel-per-day East-West pipeline provides another route around Hormuz, but the market remains dependent on credible diplomatic progress.

This creates a highly asymmetric environment.

If talks produce a durable reopening of Hormuz, crude could surrender a meaningful portion of the remaining geopolitical premium.

If negotiations fail and attacks on shipping or infrastructure resume, the recent 9% decline could reverse quickly.

Locally, this is one of the most important external variables heading into October.

A sustained Brent price below $100 would materially improve the inflation and trade outlook.

A return towards $110 or higher would reopen the case for additional SARB tightening even after today’s likely hike.

Gold Eases Towards $4,334

Gold has edged lower towards $4,334 per ounce as investors balance geopolitical uncertainty against the prospect of persistently high real interest rates.

Recent Fed commentary has kept expectations for further tightening alive, creating an obvious headwind for a non-yielding asset.

At the same time, softer oil reduces some of the inflation pressure that had been pushing real and nominal yields higher.

The underlying demand story remains strong.

Chinese gold imports have exceeded 1,000 tonnes through August, already surpassing the full-year 2025 total, providing an important source of structural support.

Gold therefore remains caught between short-term monetary-policy pressure and longer-term portfolio diversification demand.

Bullion above $4,300 continues to provide a useful terms-of-trade offset against still-elevated energy prices.

Copper Moves Back Towards Its Record

Copper continues to outperform the broader commodity complex.

LME copper has risen for a sixth consecutive session to around $14,748.50 per tonne, leaving it within roughly 1% of its record high. Comex copper has already reached a fresh all-time high.

The physical picture is particularly supportive in China.

Shanghai inventories have fallen to only 43,900 tonnes, their lowest level since 2023, while much of the metal arriving in the country is reportedly moving directly to fabricators rather than into exchange warehouses.

That points towards genuinely tight spot availability ahead of the Mid-Autumn Festival and National Day holiday period.

The primary risks remain higher US interest rates and uncertainty around prospective US tariffs on refined copper.

Nevertheless, the combination of tight physical supply and structural demand keeps the broader copper story constructive.

The metal is almost 48% higher year-on-year, while silver is around 50% higher, platinum roughly 28% higher and zinc about 35% higher.

China Draws Firmer Lines Ahead of the Trump-Xi Summit

The upcoming Trump-Xi summit remains one of the week’s most important international events.

According to the supplied material, China’s ambassador to the US has emphasised that Taiwan and human-rights issues are non-negotiable red lines, while the summit is expected to focus more heavily on trade, tariff relief, AI and strategic commodities.

Because web verification of these current political claims did not return matching results this morning, they should be read as source-derived rather than independently verified.

From a market perspective, the key issue is whether the existing trade truce can be extended.

A roughly one-year extension is presented as the most plausible compromise, while agricultural and aircraft purchases could provide visible headline agreements. Critical minerals and Taiwan remain potential sources of friction.

The most useful outcome for financial markets would probably be stability rather than a dramatic breakthrough.

Avoiding renewed tariff escalation would reduce uncertainty for global supply chains and manufacturing at a time when higher energy and interest costs are already weighing on growth.

Flash PMIs Will Show Whether Global Growth Is Slowing

Today’s international calendar is dominated by September flash PMIs.

The Eurozone composite index is expected at 51.8 versus 52.0 previously, with manufacturing around 52.6 and services at 51.4. UK composite PMI is expected at 52.0 compared with 52.5.

The US numbers follow this afternoon.

US composite PMI is expected at 54.7 from 56.0, manufacturing at 53.5 and services at 55.8.

The US therefore remains the expected outperformer, but momentum is forecast to slow from August’s strong levels.

The inflation components deserve particular attention.

If output cools while input prices remain elevated, central banks face the uncomfortable combination of weaker activity and persistent inflation.

If price pressure moderates alongside slower growth, markets may begin questioning how much additional tightening is actually necessary.

Durable Goods Will Test Whether Business Investment Remains Strong

Friday’s US durable-goods report will provide another important check on the economic cycle.

Headline orders are expected to decline because of weaker transport bookings, while orders excluding transportation are expected to increase at a firmer pace.

Core capital-goods orders will be particularly important because they provide a cleaner measure of business equipment spending.

Strong capital imports, robust corporate earnings and elevated order backlogs still point towards resilient investment.

The risk is that higher input costs, expensive financing and longer delivery times eventually slow that momentum, particularly across the enormous AI-related capital-expenditure cycle.

That matters for the Fed because continued strong investment would support growth while potentially reinforcing price and financing pressure.

South Africa’s Leading Indicator Adds to Growth Concerns

South Africa’s leading indicator declined another 0.9% month-on-month to 118.2 in July, with year-on-year growth slowing sharply from 4.5% to 2.3%.

Six components weakened.

The decline reinforces the message from GDP, manufacturing PMI and business confidence that forward economic momentum remains subdued.

This is an important qualification around today’s policy decision.

The SARB may have a credible case for raising rates to protect the inflation anchor, but it will be tightening into an economy where future activity indicators are already deteriorating.

That makes the Bank’s guidance crucial.

A hike can be justified as a preventative measure without implying that a prolonged sequence of increases is inevitable.

Chart of the Day — Oil and Inflation Expectations Have Diverged

The Chart of the Day compares WTI crude-oil futures with the US 10-year breakeven inflation rate and highlights one of the most important questions facing global central banks.

Historically, the two measures have often moved closely together. The chart particularly highlights the 2021-22 period, when higher oil prices were accompanied by a sharp increase in market-based inflation expectations.

The current episode looks different.

WTI has surged dramatically during 2026, at one stage moving above $110 per barrel, while the US 10-year breakeven rate has risen far less aggressively and remains around the mid-2% region.

Even after the latest oil decline, crude prices remain elevated relative to the inflation expectations embedded in Treasury markets.

There are several possible interpretations.

Investors may believe the energy shock will ultimately prove temporary.

They may also believe central banks will respond sufficiently forcefully to prevent the initial price shock from spreading into wages and services.

Alternatively, inflation expectations may still be underestimating the persistence of the energy shock.

The latest fall in oil improves the first two interpretations. If Brent and WTI continue retreating as diplomatic progress improves, the divergence can narrow through lower crude prices rather than higher inflation expectations.

That would be the more favourable outcome for bonds, the rand and central banks.

A renewed surge in oil without a corresponding increase in breakevens would once again raise the question of whether the rates market is underpricing the inflation consequences.

Bottom Line

Today is one of the most consequential domestic market sessions of September.

USD/ZAR begins around 16.1850, with the rand displaying exceptional resilience ahead of a SARB decision for which markets now price more than a 70% probability of a 25-basis-point hike.

The case for tightening is clear but not overwhelming.

Inflation is expected to rise to 4.5%, October fuel increases remain a threat, the current-account deficit has widened and major developed-market central banks have already tightened. A measured hike could reinforce the credibility of the 3% inflation target, support savings and reduce the risk that imported inflation feeds through the currency.

Against that, domestic demand remains weak. GDP contracted in Q2, manufacturing is in contraction, business confidence is low and the leading indicator has weakened again. Inflation expectations remain relatively contained and, crucially, oil has fallen sharply.

That is why guidance may ultimately matter more than the hike itself.

A 25-basis-point increase accompanied by conditional, data-dependent guidance would tell markets that the SARB is protecting credibility without committing itself to a prolonged tightening cycle.

A hold would require a much stronger explanation. With USD/ZAR already trading below 16.20 and rate markets heavily positioned for tightening, disappointment could produce a relatively sharp adjustment towards 16.34.

The global backdrop is simultaneously becoming somewhat more supportive.

Brent below $100 is the single most constructive development for South Africa this morning. A sustained decline would reduce the import bill, ease fuel inflation, improve household purchasing power and reduce pressure on the SARB. A genuine reopening of Hormuz could extend that improvement considerably.

The bond market is also signalling greater confidence, with yesterday’s auction attracting R14.665 billion of bids and 5.8-times average cover, the strongest demand since February. Investors appear increasingly willing to extend duration when they believe inflation will remain contained and valuations provide adequate compensation.

Daily Market Report – 23 Sep 2026