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Johannesburg - The rand gained against the dollar on Thursday after the central bank
said the inflation outlook had deteriorated, diminishing some market players’
hopes there could be another rate cut to support a weak recovery.
The Reserve Bank left the repo rate unchanged at 5.5% and
said it was concerned about inflation.
Central Bank Governor Gill Marcus said while the Monetary Policy
Committee considered a cut, the decision to leave rates unchanged was unanimous
and none of its seven members advocated for further monetary loosening.
Some players in the market were still hoping for a rate cut as the
economic recovery has proved to be much weaker than anticipated.
The rand firmed by more than 1.5% against the dollar on the
day, hitting a session high of 7.92, from R8.0147 before. It was trading at R7.94
to the dollar at 1612 GMT, from Wednesday’s New York close of R8.05/$.
“The market was factoring in a chance of the rate cut, so we did
not get it. That is the major reason. Also the euro had a strong day, so it was
the combination of the two,” said Jim Bryson, dealer at RMB.
The central bank said the rand’s recent weakness - of 12%
to the dollar since the beginning of September - was an upside risk to
inflation but the impact wold be limited unless the currency continues to
depreciate.
Although bonds were still firmer on the day, yields ticked up after
the central bank’s statement. The yield on the 2015 bond rose to 6.475%
from 6.42% prior to it. The 2026 yield rose to 8.275% from 8.245% before.
“The MPC is being very prudent and is concerned about inflation and
developments in Europe. They don’t have much ammo left and they’d rather wait
until there are more developments,” said a bond dealer.
