South African Markets Pivot from Predicted Interest Rate Cuts to Four Hikes as Middle East War Escalates

Markets now price in four South African rate hikes as the Middle East conflict drives oil up 90% and threatens national fuel security.

By: AXL Media

Published: Mar 25, 2026, 7:45 AM EDT

Source: Information for this report was sourced from Ashburton Investments

Geopolitical Volatility Ends Hopes for Monetary Easing

The outlook for South African monetary policy has deteriorated sharply following military strikes involving the United States, Israel, and Iran, which have effectively blocked the Strait of Hormuz. This geopolitical crisis has dismantled previous market assumptions that the South African Reserve Bank (SARB) would deliver multiple interest rate cuts over the next 18 months. Instead of the anticipated relief for consumers, the three-month forward rate has shifted violently, now pricing in four interest rate hikes as inflation risks move from under control to highly aggressive.

Energy Security Vulnerabilities Under a Strengthening Dollar

South Africa’s economic position is being further compromised by a domestic fuel infrastructure that is ill-equipped to handle global supply shocks. Brent Crude prices have surged by approximately 90% since January, while the rand has depreciated to R17.20 against the US dollar. Albert Botha, Head of Fixed Income at Ashburton Investments, pointed out that the nation’s strategic petroleum reserves are currently holding less than 8 million barrels despite a 45-million-barrel capacity. This deficit, a lingering consequence of illegal reserve sales in 2016, leaves the country highly exposed to prolonged maritime disruptions.

Structural Constraints in Refining and Power Costs

The ability of the South African economy to absorb external energy shocks has been halved since 2010 due to a significant decline in domestic refining capacity. This structural decay necessitates a heavy reliance on refined fuel imports, which are now subject to both higher commodity prices and increased shipping risks. Compounding these energy woes are recent NERSA-approved electricity tariff hikes of up to 9.01% for municipalities. These regulated price increases create a high floor for inflation that the SARB must account for, regardless of international oil price fluctuations.