Rand softens ahead of SA Reserve Bank rate decision

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Rand Source: Google Images

The rand weakened against the dollar on Thursday morning ahead of the South African Reserve Bank (SARB) rate decision later in the day.

At lunchtime on Thursday, the rand was trading at around R14.69/$1, up 0.61%.

Lukman Otunuga, a research analyst at forex brokerage firm FXTM, said the markets widely expect the central bank to keep the repo rate on hold at 6.75% in March on the back of a depreciating rand.

“With global growth concerns and geopolitical risks weighing on sentiment, the SARB is likely to remain cautious like many other major central banks,” Otunuga said.

“The rand has scope to weaken further if the central bank expresses concerns over the domestic economy and possible impacts of geopolitical risks.”

Otunuga also said that investors would also direct their attention towards South Africa’s Producer Price Index data, which is projected to rise to 4.6% year-on-year in February.

Annabel Bishop, Investec Bank chief economist, said the Sarb’s monetary policy committee (MPC) was likely to keep the repo rate on hold this week in the current environment of heightened uncertainty.

Moody’s Rating Agency is expected to release its rating decision on South Africa on Friday and on the international front, the United Kingdom’s looming decision on Brexit is expected to have severe consequences on the British pound. Sterling has tumbled as uncertainty over Britain’s exit from the EU dampened investor interest in the currency.

“Should Moody’s deliver a downgrade to SA’s rating, this will push the country into sub-investment grade and marked currency weakness would be likely, along with higher bond yields and short-term money market rates,” Bishop said.

“Should this deterioration be substantial, the MPC could even hike rates before 23 May 2019, its next MPC meeting.”