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Rand gets a boost from rate hike

Lindiwe Tsobo tsobol@businesslive.co.za

The rand reached its best level in two weeks on Thursday after the SA Reserve Bank raised its benchmark interest rate in line with market expectations.

The Bank’s monetary policy committee increased the repo rate by 50 basis points to 4.75%, the biggest in more than six years, as it tries to reel in inflation that is running close to the upper end of its target range.

“Today’s [Thursday’s] hike and reinforcement of the central bank’s inflation-fighting credibility probably puts the Bank ahead of the domestic inflation curve and better aligns the local policy stance to global dynamics. This view was borne out by the price action in the market,” said Matrix Fund Managers economist and macro strategist Carmen Nel.

“The rand and domestic bonds reacted positively to the outcome, which suggests that the level of the policy rate is not yet a concern for the growth outlook. Rather, the prudent approach by the [Bank] in the face of elevated inflation risks should reduce the risk premium embedded in SA asset prices,” Nel added.

The rand firmed more than 1.5%, reaching an intraday level of R15.7568/$. At 6.13pm, it was 1.34% stronger at R15.8455/$, but 0.18% weaker against the pound at R19.8299/£ and little changed versus the euro at R16.7750/€. The euro was 1.2% firmer at $1.0587.

The yield on the R2030 SA government bonds fell 10 basis points to 9.88% as prices increased in response to the interest rate hike.

The JSE, meanwhile, tracked its global peers lower as the effects of inflation on retailers’ earnings and the prospects of further monetary policy tightening continued to weigh on sentiment.

“It’s been another turbulent session after stock markets turned sharply lower as investors fret over the outlook for the economy this year,” said Oanda senior market analyst Craig Erlam.

“Results from [US retailers] Walmart and Target this week have brought into sharp focus the plight facing companies and consumers as inflation begins to bite,” he said. “The question is whether we’re going to see a slowdown or a recession.”

The JSE all share lost 1.21% to 68,245.84 points, while the top 40 slid 1.23%.

Gold gained 1.39% to $1,841.79/oz and platinum 2.45% to $963. Brent crude was 1.31% higher at $110.56 a barrel.

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2022-05-20T07:00:00.0000000Z

2022-05-20T07:00:00.0000000Z

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