Rand weakens ahead of rates decision

Johannesburg - The rand weakened against the dollar and was expected to remain on the back foot ahead of a monetary policy decision later on Thursday, with investors cautious as they wait to hear the central bank’s thinking on the outlook for growth and inflation.

All 31 economists surveyed by Reuters said the central bank’s Monetary Policy Committee would opt to keep rates at 5.5% to help a fragile economy instead of acting on inflation.

However some analysts are concerned about the weak rand effect on inflation and will focus their attention on Governor Gill Marcus’ comments on CPI to try and gauge when the bank may start to tighten policy.

The rand came off the year’s low in the previous session to R8.3950/dollar at 06:45 GMT, compared to a R8.3650 close in New York.

The manufacturing sector, which has long called for authorities to intervene and weaken the rand to help support industry, is happy with the lower rand and says an R8.50 level is not inflationary, citing high food and oil prices as the cause of price pressures, a local paper reported on Thursday.

However the rand is finding R8.50 quite difficult. It failed at the R8.45/6 level on Friday, on Wednesday and in November, which resulted in a sharp bounce to R8.18 levels then.

“The snapback from the intraday high by dollar/rand yesterday is similar to the moves seen on Friday near the R8.45 level, and coupled with the volatile moves over the last few days we are on edge. We await the Sarb’s announcement on local interest rates today,” said Judy Padayachee, a technical strategist at Absa Capital.

Padayachee said the R8.20 and R8.45 levels would signal direction on the rand and a continued fail at R8.50 could point to tiring rand bears.

“The R8.45-R8.50 area has to hold to offer hopes of a near-term reprieve for the rand.”

Yields on government debt were slightly lower, pulling back from one week highs. The 2015 note dropped four basis points to 6.375% while the 2026 issue gave up one basis point to 8.35%.

The central bank’s rates decision is due just after 13:00 GMT.