Why a weaker rand is suddenly putting a SARB rate cut at risk

Both the rand and gold price have come under pressure after US President Donald Trump nominated a new Fed Chairman. As the rand weakened to R16.14 against the dollar, down from R15.64 last week, expectations of a South African Reserve Bank interest rate cut in March are dimming as currency pressure narrows the central bank’s room to manoeuvre. Kristof Kruger, senior fixed income trader at Prescient Securities, said exchange rate movements play a critical role in inflation dynamics and monetary policy decisions.

“A stronger or stable rand helps contain imported inflation – fuel, food, and goods priced in dollars,” Kruger said. “When the rand is firm, inflation risks ease, and the South African Reserve Bank (SARB) has more room to cut rates.” However, Kruger said sharp rand weakness can quickly remove that flexibility. “Even if growth is weak, the SARB may have to hold rates higher to protect inflation credibility, especially under the new 3% inflation target.” The rand’s recent pullbackhas been driven largely by a shift in global risk sentiment, alongside US dollar strength and falling precious metal prices.

Anchor Capital co-chief investment officer Nolan Wapenaar said the move began after Kevin Warsh was appointed as the next chair of the Fed. “In a world of political chaos, the appointment was remarkably normal,” Wapenaar said. Warsh is a man who understood the inner working of the Federal Reserve and also a man who was more cautious on future interest rate cuts than we had anticipated,” he said.

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Wapenaar saidfinancial markets initially responded with relief, supporting the dollar and weighing on the rand. That sentiment then deteriorated further as investors began questioning the artificial intelligence investment thesis, placing pressure on technology stocks and triggering a broader reduction in risk appetite. “The rand is considered a riskier currency and would naturally give up some of its recent gains in such an environment,” he said, adding that Anchor Capital remains moderately positive on the rand’s longer-term outlook despite expected volatility.

The rand is expected to average R16.40 to the dollar this quarter. Investec chief economist Annabel Bishop said on Monday the rand is still expected to average R16.40 to the dollar this quarter. She noted that the currency had weakened from last week’s highs as global risk appetite moderated.

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