Publications
Partners
Cape Town – The tumultuous rand on Monday continued to move to the beat of Turkey’s failed coup, days before the release of local inflation data and an interest rate announcement.
“With the movements revolving around the political situation in Turkey, the moves started at about 20:00 on Friday night and saw the rand move in sympathy with the lira up to R14.56/$ at one stage,” said Umkhulu Consulting’s Adam Phillips on Monday.
“With the coup being crushed (for the moment) we are now back at almost the same levels as Friday afternoon after some mixed data out of the US,” he said.
By 10:00 on Monday, the rand was 1.8% firmer at R14.29/$, 0.61% stronger at R18.93 to the pound and 0.11% stronger at R15.82 to the euro.
“Although the recent rand gains are a welcome development from an inflation point of view, the wide swings we see just illustrate how fragile the currency is to event risks, especially given that the gains are not driven by notable improvement in local economic fundamentals,” said RMB analyst Isaah Mhlanga on Monday.
While Consumer Price Index (CPI) data, which reflects the country’s inflation rate, will be released on Wednesday, the important decision by the SA Reserve Bank’s (Sarb) Monetary Policy Committee regarding the country’s repo rate will be made on Thursday.
RMB expects the CPI to increase slightly to 6.2% from 6.1% recorded in May, reflecting increases in transport, housing and household contents, said Mhlanga. “Inflationary pressures remain on the upside,” he said.
“We expect the Sarb to remain concerned with the risks to the inflation outlook but to keep the repo rate unchanged at 7% on Thursday,” he said. “The recovery in the rand over the past month will make it difficult for the Sarb to justify a hike. However, wage negotiations and inflation expectations will feature as concerns to the inflation outlook.”
Phillips said they won’t raise rates on Thursday given what has gone on in the last month internationally and also because local data does not support a hike at the moment.
“With the oil price down and the rand strength of late, this should help the inflation number stay fairly steady.”
A Reuters poll that surveyed 31 economists reflects NKC Economics view that the Sarb is expected to maintain interest rates at 7% on Thursday, it said on Monday.
The poll median indicates another hold in September, but a hike of 25 basis points in the November meeting.
“However, our baseline view is for two hikes this year of 25 basis points apiece, given central bank’s hawkish language over preceding meetings and objective to bring inflation within its target range,” said NKC.
