Rand volatility soars to eight-year high before rates decision

One-month implied volatility for the rand versus the dollar climbed to the highest in more than eight years on Tuesday as investors bought protection against wide swings in the currency after Thursday’s policy meeting.

The rising options volatility suggests there’s a great deal of uncertainty among market participants over the policy decision.

All 21 analysts in a Bloomberg survey are predicting a cut, but they’re split almost 50/50 over whether it will be 25 or 50 basis points. Forward-rate agreements, which as recently as Friday offered 80% odds on a 25-point reduction, are now pricing in 56 basis points.

That leaves plenty of room for disappointment, given that South African Reserve Bank Governor Lesetja Kganyago said two weeks ago the central bank won’t panic. No wonder traders are hedging their bets.

By late afternoon, the rand was trading at R16.62/$, from R15.86 a week ago. On Monday, the rand was at R20.04 against the pound and R18.29 to the euro.