Jul 2026

Currency: Despite the calming effect of the US-Iran 60-day truce reached in mid-June. The bigger driver by far was the US Federal Reserve: new Fed Chair Kevin Warsh’s hawkish first outing signalled a firm commitment to bringing inflation back to target, and markets responded by pulling forward their expectations for the next rate hike from around January/March 2027 to as early as December. That repricing strengthened the dollar broadly and pressured the rand along with it. Looking ahead, though, the outlook has some supportive elements for the rand: the SARB’s continued commitment to its 3% inflation target should keep the interest rate gap between the US and South Africa reasonably favourable, and the easing of Middle East tensions, with oil prices falling back to pre-war levels, removes a key inflation and risk headwind. On valuation, the rand still looks overvalued against the dollar on a risk-adjusted basis, which is why importers are currently finding attractive forward rates to lock in, while exporters may be better off waiting for a more favourable level before committing.  

Inflation: Headline CPI rose to 4.5% y/y in May from 4.0% y/y in April, driven largely by higher fuel prices, while core inflation edged up to 3.8%. However, easing oil prices following reduced tensions in the Middle East should see fuel inflation moderate from July, lowering the risk of inflation exceeding 5.0% and limiting broader second-round inflationary pressures.

 

Repo rate: The SARB raised interest rates by 25bps in May, citing rising inflation risks from higher oil prices and second-round inflationary risks. While the war has ended, recent comments by SARB Governor suggest the SARB remains cautious and that persistent inflation expectations could delay further policy easing or, if they continue to rise, strengthen the case for tighter monetary policy.

 

Government Finances: The ytd budget deficit (Apr-May 26) stood at -R78.2bn compared to -R74.7bn in the 2025/26 fiscal year, pointing to a slightly worse fiscal position. More broadly, SA’s fiscal outlook is expected to deteriorate in the 2026/27 fiscal year, as the recent Middle East conflict likely weighed on economic activity and, in turn, tax revenue collection. Encouragingly, the recent Fitch credit rating upgrade should help contain government borrowing costs, partially offsetting the effects of the war in the Middle East.

 

GDP Growth: Although GDP growth improved to 0.5% q/q in Q1 and 1.9% y/y, the recovery was driven largely by lower imports and stronger agricultural output rather than broad-based economic strength. Manufacturing remained weak, investment declined, and consumer spending slowed, suggesting growth prospects remain subdued and the longer-term trend of deindustrialisation persists.

 

Offshore conditions: Geopolitical tensions in the Middle East eased following the announcement of a 60-day US-Iran truce, reducing concerns over disruptions to oil supplies through the Strait of Hormuz. Brent crude prices retraced much of their earlier war-related gains, helping to moderate global inflation concerns and improve broader risk sentiment. However, market attention shifted increasingly toward monetary policy after Federal Reserve Chair Kevin Warsh’s hawkish debut prompted a significant repricing of US interest rate expectations. His emphasis on restoring inflation to target reinforced expectations that US interest rates could remain higher for longer, pushing Treasury yields higher and supporting broad US dollar strength. While lower oil prices reduced the need for additional policy tightening in many other major economies, central banks largely maintained a cautious, data-dependent stance amid lingering inflation risks and heightened uncertainty over the global growth outlook.
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