Local markets ended the day on a positive note yesterday in spite of the South African Reserve Bank (SARB) delivering the biggest interest rate hike in 20 years, with the rand ending the day higher.
The SARB yesterday delivered a hawkish 75 basis points hike in interest rates due to persistently elevated headline inflation and the rand’s weak exchange rate.
This was the fifth hike in a row since and the SARB has now hiked rates by a cumulative 200 basis points since November 2021 in a bid to tame price pressures.
In spite of this, the rand moderated to R17.06 to the US dollar at 5pm as speculators had already priced in the SARB’s hawkish monetary policy stance.
The rand eased in early trade on Friday, losing gains from the previous day made on the biggest rate hike in nearly two decades delivered by the central bank in order to tame soaring inflation.
At 09:08 am on Friday morning, the rand traded at 17.0300 against the dollar, 0.06% weaker than its previous close.
The rand rose against the dollar on Thursday after the central bank hiked its main lending rate by 75 basis points to 5.50%.
However, Commerzbank analysts said in a research note that the gains were limited.
"In view of domestic risks, the rand is likely to have difficulties to stand its ground in a challenging environment and come under depreciation pressure in case of risk-off," the analysts added.
On the stock market, the Top-40 and the broader all-share indexes rose more than 0.5% in early trade.
Ashburton Investments fixed income strategist Michael Grobler said the SARB’s rate hike resulted in the rand appreciation, but SA government bonds stole the limelight.
“This move is likely to be very supportive of SA government bonds and the rand into month-end when we will also see an increase in SA weight in the JPM GBI EM index and R41bn of coupon payments lend additional support to bruised bond investors,” Grobler said.
Stocks at the JSE also inched higher, with the All Share Index rising 0.4 percent to 67 907 points, driven by retail and property-linked shares.
The SARB also hinted at further aggressive monetary tightening going ahead while reiterating that economic growth remains above a low rate of potential, despite threats of high inflation and global economic slowdown.
Jeff Schultz, a senior economist at BNP Paribas South Africa, said another 75 basis points hike remained their base case for September, but a larger hike could be on the cards.
“But its latest communication, we believe, clearly opens the door for a larger 100 basis points hike at its next scheduled meeting should (inflation) continue to surprise to the upside,” Shcultz said.
“We don’t necessarily think that this changes our call for a 7 percent terminal rate, but rather the timing which could conceivably now be achieved by year-end vs our still well above consensus January 2023 forecast.”
Meanwhile, Reuters reports that gold bounced off a one-year low, gaining more than 1 percent on Thursday, benefiting from some safe-haven interest amid economic concerns as the dollar eased.
Spot gold was up 1 percent at $1 713.99 per ounce (R27 282) in intra-day trade, after hitting $1 680.25, its lowest since end-March 2021.
Helping gold’s uptick, the euro jumped against the US dollar before paring gains, after the European Central Bank raised interest rates by more than expected as concerns about runaway inflation trumped growth considerations, even while the euro zone economy reels from the impact of Russia’s war in Ukraine.
“They’re kind of in a bad situation overall,” with everything from geopolitical aspects with Ukraine, higher energy prices, massive amounts of debt, all driving buying interest in gold, said Daniel Pavilonis, a senior market strategist at RJO Futures.
The dollar eased, making gold more attractive for overseas buyers. Bullion competes with the dollar as a safe haven.
BUSINESS REPORT