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Money Market FundsThe SARB delivered a unanimous hold at 6.75%, but the March MPC statement carried a distinctly more hawkish tone as the Middle East oil shock shifted risks toward higher inflation and delayed the easing cycle.
While the SARB’s baseline still sees inflation returning to 3%, the QPM now pushes rate cuts into the second half of 2026 and explicitly incorporates scenarios that would require renewed tightening if energy prices remain elevated or the rand weakens materially.
The SARB complemented its baseline forecast with two adverse scenarios centred on the potential persistence of the Middle East conflict and higher oil prices.
In the first scenario, where the war lasts a few months, oil near US$100, and the rand about 5% weaker, inflation rises above 4%, and the SARB would likely need one additional rate hike this year before inflation gradually returns to target around 2027.
In the more severe scenario, with the conflict lasting over a year, oil remaining above US$100 and the rand weakening roughly 10%, inflation would exceed 5% and require several rate hikes, with the policy rate potentially approaching levels seen in the previous tightening cycle.
In both cases, growth weakens initially due to higher costs and uncertainty, but the key message is that the SARB stands ready to tighten policy if second-round inflation pressures emerge.
The ETM view in the accompanying chart assumes the war will not drag on indefinitely and that its impact on inflation will be transitory.
Unfortunately, should the war extend well into the second half of 2026, the impact would be much more severe, nudging ETM’s rate expectations higher to between current expectations of a flat outcome and what the professional market already has priced in.
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