The rand was relatively stable and remained unchanged at R19.20 against the US dollar yesterday after touching a new record low of R19.52 on Friday. File photo
The rand was relatively stable and remained unchanged at R19.20 against the US dollar yesterday after touching a new record low of R19.52 on Friday, supported by expectations of further interest rate increases in spite of slowing inflation.
The domestic currency has weakened significantly over the course of this month due to geopolitical tension and intensified power cuts, breaching the R19-mark to the greenback, R20.70 and R23.80 to the euro and the pound, respectively.
TreasuryONE currency strategist Andre Cilliers said: “The rand firmed in early trade this morning despite the dollar holding on to yesterday's stronger levels against the majors.”
“Markets remain edgy as US lawmakers struggle to come to an agreement on raising the US debt ceiling.”
Headline consumer inflation eased to its slowest in 11 months in April, reaching 6.8% year-on-year from 7.1% in March.
This was the lowest reading since May 2022, but still above the upper limit of the South African Reserve Bank (SARB) target range of 3%-6%.
Inflation is expected to start declining and average at least 6% this year, but the threat of a Stage 8 load shedding during winter months could see consumer prices ramping up again.
FNB senior economist Koketso Mano said the weaker rand should also add to imported inflation, affecting various items across the consumer basket.
“The latest bout of rand depreciation and intensified load shedding should keep inflation risks elevated going into the upcoming interest rate announcement,” Mano said.
“The impact on aggregate demand is likely to be mired by the ongoing investment into alternative sources of energy.”
Despite this softening inflation, the SARB is widely expected to deliver between 25-50 basis points rate hike today, Thursday, amid severe nationwide power outages and to alleviate the pressure on the currency.
Economists concur that a continuation of the hiking cycle would showcase the SARB’s Monetary Policy Committee’s efforts to uphold their credibility in guiding inflation to target, especially in a time when global inflation remains elevated.
Additionally, the annual core inflation quickened to an over six-year high of 5.3% in April, indicating inflationary pressures persist due to sticky food inflation.
Oxford Economics Africa’s head of macro Jacques Nel said the SARB was still expected to increase its benchmark lending rate by 50 basis points from 7.75% to 8.25% per annum.
“Having said that, the latest inflation print might give MPC members something to think about,” Nel said.
“Further tightening will not provide a meaningful boost to the rand, and given the uncertain environment, markets will scrutinise the SARB’s forward guidance.”
BUSINESS REPORT