Rand breaks through R13.20/$ as SA shows little chance of following suit on rates | Fin24
 
In partnership with
  • Credit Rating

    Moody's has (again) said that weak state-owned entities are a risk to SA's sovereign credit rating.

  • SARS Inquiry

    Judge Nugent has recommended the president sack suspended SARS boss Tom Moyane.

  • Nene Rand Rollercoaster

    Simon Brown says savvy investors worked out how the rand would react to uncertainty at Treasury.

Loading...

Rand breaks through R13.20/$ as SA shows little chance of following suit on rates

Jun 08 2018 10:20
Colleen Goko and Robert Brand, Bloomberg with Fin24

The rand extended a slump after breaching R13 per US dollar for the first time since December as investors bet there’s little chance the SA Reserve Bank will follow emerging-market peers in raising interest rates.

Turkey on Thursday became the latest emerging-market central bank to deliver a surprise rate increase as currencies sag. The SARB, which targets inflation and has often stated it won’t act to bolster the rand, left its benchmark rate unchanged last month. The worst quarterly economic contraction in nine years suggests it won’t tighten anytime soon, according to Brown Brothers Harriman & Co.

“Rand weakness reflects a broad re-pricing of emerging-market assets within a context of rising US interest rates,” said Win Thin, the firm’s global head of emerging-markets strategy. “This latest bout of rand weakness was triggered by the much weaker-than-expected first-quarter GDP report.”

The rand weakened 1.8% to R13.25 to the dollar by 10:17 on Friday. At 13:29, it was trading at R13.14/$.

The rout started earlier in the week with weaker-than-expected economic growth numbers and as emerging markets fell out of favour. On Thursday the local unit dropped to its worst level since December 15, days before Cyril Ramaphosa won the leadership of the African National Congress, putting him on course for the presidency.

The currency’s decline worsened after the drop in Brazil’s real dampened sentiment toward risky assets, driving losses on a gauge that tracks emerging-market currencies to the most in more than a week.

With the Federal Reserve proceeding with policy tightening, and another interest-rate hike expected next week, emerging markets across the globe are bracing for a further selloff. Turkey joined Indonesia and India in raising rates.

The SARB's policy is to let the currency float freely, and it didn’t take action during bouts of currency weakness in the past two decades.

The GDP report this week showed that South Africa’s economy shrank the most in nine years in the first quarter, casting a pall over Ramaphosa’s promise to boost growth. His rise to power since December initially boosted sentiment and the rand following former president Jacob Zuma’s scandal-ridden tenure, but confidence indexes have now returned to where they were late last year as businesses seek lasting change.

After standing pat on the main policy rates last month, the central bank hinted that further loosening was off the table as inflation pressures build. Money markets are pricing in only 12 basis points of tightening over the next 12 months.

“It is clear that the economy is in a fragile state and it may take some time before we see any evidence of a Ramaphosa effect,” said Natalie Rivett, a senior emerging-markets analyst at Informa Global Markets in London.

The rand is down over 3% this week, heading for the worst since the five days through May 18. The yield on government debt due 2026 climbed 6 basis points to 8.87%. Yields have climbed 26 basis points this week.

* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.


Follow Fin24 on Twitter, Facebook, Google+ and Pinterest. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

rand  |  interest rates  |  dollar  |  markets  |  gdp  |  currencies
NEXT ON FIN24X

 
 
 
 

Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The appointment of Tito Mboweni will:

Previous results · Suggest a vote

Loading...