Rand faces test as Reserve Bank decides on interest rates

The rand was little changed on Tuesday morning, but stayed above the psychological level of R15/$, reflecting market uncertainty about the outlook on domestic interest rates.

The Reserve Bank will probably raise interest rates by 25 basis points to 3.75% when its monetary policy committee wraps up its scheduled meeting on Thursday, according to Bloomberg median estimate. This will be the first time in three years that the Bank has tightened policy.

Policymakers around the world are under pressure to rein in rising prices without jeopardising fragile global economic recovery.

In SA, consumer inflation is expected to have risen at an annual rate of 5% in October, according to Bloomberg median estimate, which is above the 4.5% midpoint range preferred by the Bank.  Stats SA will release the data on Wednesday.

Investec chief economist Annabel Bishop said the rand could weaken if the central bank keeps rates on hold on Thursday, citing tightening cycle that has begun in other countries.

“The economy has seen a quicker-than-expected rebound from the harsh lockdown restrictions of last year due in large part to the revisions of the size of the economy, and inflation is quickening, which could also tip the [Bank’s] hand into delivering a rate hike on Thursday,” Bishop said in a note.

The rand changed hands to the dollar at R15.24/$ in early trade, while the yield on benchmark R2030 stood at 9.38%.

Elsewhere, Brent crude rose 0.72% to R82.72 a barrel, having eased slightly from a seven-year high of about $86 a barrel touched in recent weeks.

Asian markets were mostly higher on Tuesday morning, despite the flat session on Wall Street on Monday night. The JSE could follow suit, though investors could take profits in selected stocks such as Richemont, which has run hard over the past week.

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Source: businesslive.co.za