Next month's fuel hike is set to be the largest ever in a single month.
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South Africa’s interest rate outlook has shifted ahead of next week’s Monetary Policy Committee meeting on Thursday, as a surge in global oil prices and a weaker rand begin to push up inflation expectations.
What had been expectations of further monetary easing has now moved towards a hold, with some economists warning that rate increases cannot be ruled out.
Lara Hodes, Investec economist, said the MPC is projected to keep rates on hold on Thursday.
“Prior to the onset of the conflict in the Middle East expectations were for further monetary easing in March, with inflation moderating on a robust rand and well contained oil prices,” she said.
However, the persistent conflict has seen oil prices surge to over $100 a barrel, while the rand has weakened on dollar strength, as funds flow into safe haven assets in the risk averse environment. Inflation expectations have risen in turn, said Hodes.
Oil prices have climbed sharply, moving above $119 a barrel this week as tensions in the Middle East disrupted supply routes, including the Strait of Hormuz.
Trading Economics noted that brent crude oil futures are at the highest level since mid-2022, as markets remained highly sensitive to escalating tensions in the Middle East. “Brent is heading for a weekly gain of more than 7%, with the Strait of Hormuz largely closed and disruptions deepening as the conflict enters its third week,” said the site.
Supply risks intensified after refinery outages in Kuwait and missile interceptions in Saudi Arabia, Trading Economics added. “Efforts to ease prices include potential US moves to lift sanctions on Iranian oil and release reserves, though volatility remains elevated,” it said.
The rand has also weakened and is now, according to Trading Economics, down 5.43% over the past month.
Andre Cilliers, currency strategist at TreasuryONE, said the currency will remain sensitive to global developments. “The local currency will continue to take its cue from international moves, with a keen focus on what the oil price does.”
Chris Holdsworth, who is responsible for investment strategy at Investec Wealth & Investment, said the shift changes the rate outlook. “It rules out the possibility of rate cuts. In fact, it means that we may well get rate increases in South Africa.”
South Africa’s annual inflation rate slowed to 3% in February, the lowest level since June 2025 and in line with the South African Reserve Bank’s target. That data, however, predates the latest escalation in global tensions.
Holdsworth added that “we could probably pencil in an increase in the fuel price next month of about R4 a litre. It's a pretty sizable increase and it will have a knock-on South African consumption.”
Independent economist Elize Kruger has said that the fuel price hike will be a shock to the system. “These increases will be the highest ever implemented in a single month in South Africa and will likely derail the fragile economic recovery envisaged for South Africa in 2026”.
Nolan Wapenaar, head of Fixed Income and co-chief investment officer at Anchor Capital says, for South African households, already facing a constrained cost-of-living environment, the impact of increasing oil prices will become visible through higher fuel prices, transport costs and food inflation.
“Current estimates point to a petrol price increase of between R3 and R4/litre, with diesel prices potentially exceeding R7.00/litre. In addition, the April fuel price adjustments will incorporate Budget 2026 fuel-related tax increases,” he said. These include carbon, general fuel, and Road Accident Fund levies.
The outlook comes against a backdrop of modest economic growth. Statistics South Africa reported that the economy expanded by 0.4% in the fourth quarter of 2025, lifting full-year growth to 1.1%.
National Treasury had expected growth to reach 1.6% in 2026 as of the end of last month when the National Budget was tabled.
Wapenaar said “while the local economy has demonstrated resilience to temporary shocks in the past, a prolonged period of elevated oil prices would place strain on South Africa’s still fragile recovery”.
The weeks ahead will be critical in determining whether the current market turbulence proves temporary or evolves into a more persistent macroeconomic challenge for South Africa and the world, Wapenaar added.
Maarten Ackerman, chief economist at Citadel, has said the overall growth picture remained fragile despite the modest improvement in 2025.
“There’s huge question marks around the length of the Middle East conflict, which could potentially have downward impact on global and South Africa’s growth,” PSG chief economist Johann Els has said.
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