Rand firms to better than R15/$ but remains vulnerable

After briefly hitting a two-year low of R15.02 to the dollar, the rand recovered on Friday afternoon but remained weaker than its overnight close.

The rand came under renewed pressure after EFF leader Julius Malema introduced a bill in Parliament proposing that the state become the South African Reserve Bank’s sole shareholder.

The ANC resolved at a party conference in December to place the Reserve Bank under state ownership.

Peregrine Treasury manager Bianca Botes said that were the state to take over the Bank, it would threaten its independence and it would not be viewed favourably by investors or ratings agencies. “The last thing that SA can afford at the moment is further panic selling or another ratings downgrade.”

The sharp fall in the local currency has raised the likelihood that the Reserve Bank might hike interest rates at its next meeting.

If the rand worsens beyond R15/$ and continues weakening, “the Bank’s monetary policy committee could hikes rates by 25 basis points at its September meeting,” Investec chief economist Annabel Bishop said.

She said with a weaker rand, local petrol prices would be at risk of rising further, and there would be a negative effect on the cost of living and future inflation.

According to Bishop, monetary policy credibility in SA is a key factor in the country’s credit ratings, while by contrast, Turkey’s monetary policy, which is under the control of its government, continues to undermine the country’s financial stability.

The retreat in the local currency was the result of renewed jitters in currency markets after a representative of President Donald Trump’s administration said further sanctions would be imposed on all countries that bought oil from Iran after a deadline in November. This includes China, which is the top importer of Iranian crude.

India and South Korea are among Iran’s top oil customers. Both countries already have started to scale back imports and are hoping to obtain waivers to buy more time to replace Iranian crude, Dow Jones Newswires reported.

The Trump administration also warned that it was prepared to impose more penalties on Turkey if it did not release a US pastor facing 35 years in prison on disputed espionage charges.

Apart from global factors, there is little to support the local currency amid concern that the economy is effectively in recession, with land expropriation concerns keeping investors on the sidelines.

The rand is now the second-worst performing European, Middle Eastern and African currency, down 16.9% since the start of August, according to Bloomberg data, while Turkey’s lira has pared losses to 39.8% in the same period, from 45.3% on Monday, when the rand was down 13.6% for the month.

At 3.01pm, the rand was at R14.8476 to the dollar, from R14.7296, R16.9417 to the euro from R16.7567 and at R18.9015 to the pound from R18.7246.

The euro was at $1.1408 from $1.1375.

The lira was last at 6.1368/$ from 5.816.

Local bonds weakened in tandem with the rand, with the R186 bid at 9.08% from 8.98%.

The US 10-year treasury was last seen at 2.8551% from 2.8641%.