The rand remained at a five-month high and local bonds extended gains on Thursday after the Reserve Bank raised its benchmark interest rate as expected.
The monetary policy committee (MPC) raised the repo rate for a third straight meeting — by a quarter of a percentage point to 4.25% — noting that inflation remained near the upper limit of its 3%-6% target range. Annual consumer price inflation was 5.7% in February, unchanged from a month earlier, according to the latest data from Stats SA.
The rand gained as much as 1.45% against the dollar — the most in two weeks — and reached an intraday best of R14.5193/$, a level last seen on October 21. At 6.14pm, it had strengthened 1.31% to R14.5464/$, 1.36% to R16.0034/€ and 1.49% to R19.1733/£. The euro was unchanged at $1.10.
Bond prices added to Wednesday’s gains, with the yield on the R2030 falling 14 basis points to 9.6%. Lower yields translate into higher prices.
While the increase in the repo rate was widely anticipated, the MPC was split on the size of the increase, with two of the five members voting for an increase of 50 basis points. Governor Lesetja Kganyago said the bigger hike was considered due to the upside risk to inflation, adding that the split decision “is reflective of the uncertain environment we find ourselves in”.
“We expected the SARB to adopt a fairly hawkish tone, as seen from other central banks recently,” said RMB client strategist John Cairns. “This forms part of its strategy to ‘lean against the wind’ and persuade economic participants that it will respond to steep rises in inflation expectations so as to mute second-round effects — specifically from oil and food price spikes.
“The current environment of high and rising inflation, both locally and globally, and downside risks to global economic activity (and thus SA) is complex for monetary policymakers, and thus keeping inflation expectations contained would provide some flexibility on the pace of interest rate hikes,” Cairns added.
“We believe that should the oil price rise to average $150 a barrel in the second quarter of the year, the SARB will be forced to enact 50bp hikes during 2022. However, we feel this is unlikely.”
In commodity markets, Brent crude had weakened 2.37% to $118.40 a barrel by 5.58pm local time. Gold gained 0.86% to $1,962.08/oz and platinum 0.44% to $1,029.
The JSE all share lost 0.65% to 74,349.94 points and the top 40 was down 0.8%. .
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