The rand was on the defensive on Friday morning, after another wild week for currency markets.
As widely expected, the Reserve Bank kept interest rates on hold on Thursday, noting global trends that had played out negatively for the rand and inflation outlook.
The upshot is that interest rates are likely to increase by at least 25 basis points by the end of 2018, according to the Bank’s projections.
The recent strength in the dollar and its ripple effects on emerging markets have helped tip the scales in favour a tighter monetary policy — a scenario that looked unlikely a few months ago.
The dollar has been the currency of choice of late, knocking virtually every other currency out of its path, though its momentum subsided somewhat this week.
“Due to the many different external factors that can impact the South African markets at any given point, with this especially being the case for the rand, setting interest rate policy is not a straight-forward task,” said Jameel Ahmad, global head of currency strategy and market research at FXTM.
“The market dynamics over the upcoming months are also likely not to be too kind for the [Bank], with the central bank likely to be pressured between battling weak economic growth and rising price pressures in SA.”
The Turkish lira continued to feel the pressure in early trade despite the 300 basis-points hike in the interest rate imposed earlier in the week. The currency has lost 16% so far in May, hobbled in part by domestic political and economic concerns.
The euro and the pound also came unstuck this week as economic data disappointed, casting fresh doubts if policy makers will be able to normalise monetary policy.
At 10.12am, the rand was at R12.4877 to the dollar from R12.4218, R14.6101 to the euro from R14.5585 and R16.6779 to the pound from R16.6212.
The euro was at $1.1699, from $1.1721.