Rand gains after c.bank hikes rates to biggest since 2002

The rand gained against the dollar on Thursday after the central bank hiked its main lending rate by 75 basis points to 5.50%, its biggest rise in nearly two decades, to tame soaring inflation.

At 1410 GMT, the rand traded at R17.01 against the dollar, 0.79% stronger than its previous close.

This was the fifth meeting in a row that the South African Reserve Bank’s monetary policy committee (MPC) has raised its repurchase rate, a steeper hike than analysts polled by Reuters had predicted.

A Reuters poll published last week predicted a 50 basis points (bps) increase.

“The aim of policy is to stabilise inflation expectations more firmly around the mid-point of the target band and to increase confidence of hitting the inflation target in 2024,” central bank governor Lesetja Kganyago told a news conference.

The SARB has now hiked rates by a cumulative 200 bps since November last year in a bid to tame price pressures.

Data on Wednesday showed June inflation rose to a 13-year high of 7.4% year on year, from a reading of 6.5% in May, and well above from the bank’s 3%-6% range.

“This move to raise rates, while painful now, is a sign of a central bank acting credibly to return the inflation rate to their target in order to mitigate the pain of higher inflation down the line,” EY Africa’s chief economist, Angelika Goliger, said in a research note.

At 1413 GMT, stocks at the Johannesburg Stock Exchange seemed little affected by the central bank decision, with benchmark all-share index dipping a fraction 0.01% to 67,649 points while the blue-chip index of top 40 companies was down 0.02% at 61,368 points.

The government’s benchmark 2030 bond soared, with the yield down 24.5 bps at 10.705%.