HomeNewsSA rand recoups losses

SA rand recoups losses

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JOHANNESBURG — South Africa’s rand stood its ground against the dollar on Friday boosted by the waning strength of the United States currency and after Central Bank governor Gill Marcus hinted higher interest rates may be in store.

The rand was trading at 7,5836% at 1635 GMT, 0,5% higher than Thursday’s close of 7,6265.

Marcus, in a statement on inflation released late on Thursday, sounded hawkish, saying inflation was now showing signs of demand-side pressure rather than only external factors. Analysts took that as a signal that interest rates could rise given that previously Marcus had said the central bank would not raise interest rates given the lack of demand pressures.

The upward inflation trajectory in recent months was mainly driven by only cost-push pressures such as food, fuel and administered prices.

With inflation expected to return back into the South African Reserve Bank’s 3-6% target by the final quarter of this year, interest rate differentials will only get better for investors should the repo rate increase.

The South African Reserve Bank has kept the repo rate unchanged at 5,5% since November 2010 after cutting it by 650 basis points from 2008 in an effort to stimulate a sluggish economic recovery.

“SARB Governor, who we felt alluded to the possibility of a normalisation in South Africa’s historically low interest rate environment, is also conducive to a firmer rand from a carry trade perspective,” said Absa Capital in a client note.

The rand is expected to trade within a range in the short-term.

“The unit did get a bit spooked mid week, but looking ahead there are no major external risk factors that could prompt considerable USD/ZAR rallies,” said Anisha Arora, analyst at 4Cast.
“We expect the range tops from February around 7,75/6 to offer a decent resistance first,” Arora said.

Marcus’s hawkish comments added to a bad week for government bond prices. The yield on the benchmark 2015 government bond shot up 16,5 basis points to close at 6,835% and the yield on the longer note maturing in 2026, jumped 13 basis points to close at 8,415% for the week.

“There were two major drivers, the general broader emerging market bonds actually going weaker following the US market and on top of that compounded by the warning against inflation” said Ashley Dickinson, a dealer at Renaissance Capital. —Reuters

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