The rand weakened sharply after the South African Reserve Bank decided to keep interest rates unchanged, despite widespread expectations of another increase.

Markets had largely priced in a 25 basis point hike before the Monetary Policy Committee’s meeting on Thursday, 23 July.

However, the Reserve Bank held the repo rate steady. This forced investors to adjust their positions and placed pressure on the local currency.

The rand reached R16.98 to the US dollar on Friday, moving close to the R17 mark and hitting its weakest levels in several months. It recovered to around R16.80 on Monday, 27 July.

Markets expected another rate hike

Expectations of an increase grew after annual inflation reached 5% in June, coming in higher than anticipated.

Higher interest rates can support the rand by making South African investments more attractive when compared with markets such as the United States.

Investec Chief Economist Annabel Bishop said the rand’s recent movement was largely linked to the Reserve Bank’s unexpected decision.

Forward Rate Agreements had previously pointed to possible further rate hikes during 2026. However, Bishop said the likelihood of two additional increases was fading.

She expects no further hikes this year, although energy prices and future inflation figures could influence the Reserve Bank’s decisions.

Global risks could add more pressure

Bishop warned that the rand remains volatile and could weaken further if global investors become more cautious.

Concerns around conflict in the Middle East, energy supply and the global economic impact remain major risks for emerging-market currencies such as the rand.

For now, the local currency has not faced a fresh wave of global risk aversion. Its recent weakness has mainly been driven by markets reacting to the interest rate decision.

Rate hold brings some relief

While the weaker rand could increase the cost of imported goods, the decision offers relief to households with debt because repayments will not rise due to another rate increase.

The Reserve Bank expects economic growth to slow during the second and third quarters of 2026 before potentially recovering later in the year.

It warned that weak consumer confidence, higher fuel prices and uncertainty around investment continue to weigh on South Africa’s economy.