Rand ekes out small gains after rate cut

The rand gained a few cents after the Reserve Bank’s monetary policy committee (MPC) cut interest rates by 25 basis points (bps) on Thursday afternoon, a decision widely expected by markets.

Reserve Bank governor Lesetja Kganyago said there had been “no discussion” of a 50bps cut in the repo rate for July, although the decision to cut by 25bps had been unanimous.

At 3.35pm the rand was 0.49% firmer at R13.9450/$, after trading at R13.99 as Kganyago began speaking. It gained 0.58% to R15.6249/€ and 0.18% to R17.3751/£. The euro was flat at $1.125.

A stronger rand and a rally in local bonds recently made room for the Reserve Bank to cut interest rates by 25 bps in July, but further cuts may be made more difficult by the prospect of looming volatility in emerging markets, according to analysts.

The rand, along with its emerging-market peers, has rallied in recent months due to a weaker dollar, as markets price in a series of interest-rate cuts by the US Federal Reserve. Local bond yields have also fallen, with the benchmark 10-year, due in 2026, near a 15-month low on Thursday.

“The MPC assesses the risks to the growth forecast to be balanced in the near term but remains concerned about longer-term risks,” Kganyago said. “Investment prospects will continue to be limited in the absence of structural reforms. The escalation of trade tensions could have further negative impacts.” 

The best-case scenario is for the Bank to remain cautiously dovish, said Mercato Financial Services analyst Nico du Plessis in a note released ahead of the announcement.

While in the short-term, one or two 25bps cuts could be justified, should the global economy continue to slow and the dollar recover, emerging markets could see heightened volatility, Du Plessis said. “Investors are urged to consider the ramifications of a series of interest-rate cuts should they materialise.” He added that any rand strength in the coming months may not be sustained over the longer term.