Reading the SARB cycle into your hedge policy, not just your funding cost

Most hedge policies are written around a currency view: where the rand is heading against the dollar or euro, and how much of that exposure to cover. What gets left out far more often than it should is the interest rate cycle sitting underneath that currency view — and for businesses funding themselves in rand while earning or spending in hard currency, that omission shows up on the balance sheet eventually.

Why the repo rate belongs in your hedge conversation

The SARB repo rate doesn't just set your cost of local debt. It's also one of the core inputs into forward pricing — the interest rate differential between the rand and the dollar or euro is what determines the forward points on every hedge you put on. When that differential moves, the cost of maintaining a hedge programme moves with it, even if your underlying currency view hasn't changed at all.

A hedge policy that only revisits itself when the exchange rate moves is only watching half the picture. The other half is the cost of carry, and that's driven by the rate cycle.

What changes when SARB moves

A rate move changes three things a treasury desk should be tracking together, not separately: the forward points on new hedges, the mark-to-market on existing ones, and the relative attractiveness of different tenors. A steepening or flattening differential can make it materially cheaper — or more expensive — to extend cover further out the curve, and that's a decision worth revisiting deliberately rather than defaulting to whatever tenor was used last time.

Building rate sensitivity into policy, not just watching it

The practical fix isn't complicated: build a standing review trigger into your hedge policy tied to SARB (and, where relevant, ECB) policy decisions, not just calendar dates. When a Monetary Policy Committee decision lands, that's the moment to re-run the economics of your existing hedge book and any programme still being built out — not six months later when someone happens to notice the forward points have drifted.

The practical takeaway

Currency risk and interest rate risk are not two separate conversations for a business with foreign-currency exposure funded locally. They're one book. Treating the rate cycle as context for your hedge policy, rather than a side issue for the finance team to track separately, is one of the more straightforward ways to keep a hedge programme priced correctly through a full policy cycle.