South African rand forges higher with rate hike in sight

01/20/2022 | 10:47am

JOHANNESBURG (Reuters) -The South African rand forged higher on Thursday, extending strong gains made a day earlier when inflation figures bolstered the case for the central bank to raise interest rates next week.

At 1430 GMT, the rand traded at 15.1275 against the dollar, around 1.3% stronger than its previous close. On Wednesday it strengthened by a similar percentage.

The South African Reserve Bank's (SARB's) first rate decision of 2022 is due on Jan. 27, with economists polled by Reuters predicting a 25 basis point increase in the repo rate to 4.00% and three further hikes before the end of the year.

"The market has adjusted its pricing of implied rate hikes in South Africa somewhat aggressively," ETM Analytics said in a research note.

"The risk to the rand going forward is that the SARB disappoints by hiking less than the market is positioned for, with the prospect of easing supply-side inflation through 2022 and a flagging economy."

Data on Wednesday showed December consumer inflation accelerated to 5.9% year-on-year, more than expected and approaching the top of the SARB's 3%-6% target range. But core inflation, which strips out items such as fuel, rose to a more modest 3.4%.

Last year, the SARB lagged some other emerging market central banks including those of Russia and Brazil in raising rates, but it increased them by 25 basis points at the last monetary policy meeting of 2021 in November - its first hike in three years.

Also supporting the rand on Thursday were rising prices of precious metals gold and platinum, major South African exports.

Higher precious metal prices also boosted the Johannesburg Stock Exchange (JSE) but a fall across stocks linked to the local economy such as banks, industrials and real estate counters kept the run under check and the indexes.

"All this is inflation story out of the U.S.. Interest rates are going up and by how much that would be determined by inflation. So the market still doesn't quite know how to interpret this," said Wayne McCurrie, portfolio manager with FNB, commenting on the choppy trades through the day.

The benchmark all-share index ended up 0.07% to 76,233 points and the blue-chip index of top 40 companies was up 0.11% to end at 69,587 points.

The government's benchmark 2030 bond gained, with the yield falling 8.5 basis points to 9.285%.

(Reporting by Promit Mukherjee and Alexander Winning; editing by Barbara Lewis)

© Reuters 2022
Copier lien
Latest news about "Economy & Forex"
2m ago
4m ago
6m ago
6m ago
6m ago