South African Rand Down After SARB Repo Rate Cut, USD/ZAR Pops Above R18
The rand fell to its lowest level since mid-May as a result of the SARB's 25 basis point rate decrease, with USD/ZAR rising beyond R18.
Quick overview
- The South African Reserve Bank cut the benchmark repo rate by 25 basis points to 7%, leading to a significant depreciation of the rand.
- Following the rate cut, USD/ZAR surged above R18, marking its weakest level since mid-May and indicating a reversal from earlier gains.
- Economic indicators show sluggish growth with Q1 2025 GDP rising only 0.1%, while inflation remains low but food prices are increasing.
- The rand's outlook is precarious due to lower interest rates, modest growth, and rising food inflation, which could lead to further currency weakness.
The rand fell to its lowest level since mid-May as a result of the SARB’s 25 basis point rate decrease, with USD/ZAR rising beyond R18.
Rate Cut and Immediate Currency Impact
Following the July Monetary Policy Committee (MPC) meeting, South African Reserve Bank Governor Lesetja Kganyago announced a 25‑basis‑point reduction to the benchmark repo rate, bringing it to 7%. Commercial banks responded by lowering the prime lending rate to 10.50%.
USD/ZAR Chart Monthly – The 50 SMA Held As Support
The decision sparked a sell‑off in the rand, with USD/ZAR closing at R18.22, its first sustained move above R18 since mid‑May. This marked a sharp reversal from the currency’s strong performance earlier in 2025.
Rand Weakness and Technical Picture
The South African rand is showing early signs of fatigue after a multi‑month surge, during which USD/ZAR tumbled from above R20 to below R17.50 since April. Recent price action reflects:
- Support at the 50‑month SMA (yellow), where buyers briefly intervened.
- A bullish technical reversal on the weekly chart, with USD/ZAR rebounding above the 100‑week SMA (purple).
- Candlestick patterns indicating continued upward momentum, suggesting the pair could aim for new resistance levels if current trends persist.
USD/ZAR Chart Weekly – Bouncing Convincingly Off the 200 SMA
Economic and Inflation Context
South Africa’s Q1 2025 GDP rose only 0.1%, and prior figures were revised lower, highlighting sluggish domestic growth. Kganyago noted that Q2 data signals a mild recovery, supported by gradual structural improvements.
Inflation remains muted, with core at 2.9% and headline CPI at 3% in June, below the SARB target. However, food inflation—especially meat prices—is creeping higher, straining consumers and raising concerns for the months ahead.
The SARB projects 2025 inflation to average 3.3%, but warns that ongoing food price pressures could undermine recent currency strength and limit disinflation progress.
Market Outlook
The combination of lower interest rates, modest growth, and creeping food inflation leaves the rand vulnerable to further weakness. USD/ZAR’s move above R18.20 reflects a shift toward bullish momentum for the pair. While the rate cut supports the domestic economy and lowers borrowing costs, it also introduces greater volatility for the rand as global monetary divergence and commodity pressures persist.
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