Rand surge eases interest rate hike fears

JOHANNESBURG – The rand yesterday basked in a favourable August inflation print which surprised on the downside and eased fears that the SA Reserve Bank (Sarb) would hike interest rates today.

The local currency strengthened nearly 2 percent to R14.65 against the dollar after Statistics SA (Stats SA) said inflation softened to 4.9 percent last month from a 10-month high of 5.1 percent in July. By 5pm, the rand was bid at R14.6480.

The surprise inflation ease, which remained on the upper brand of the Sarb range of between 3 and 6 percent, however confounded the market expectations of 5.2 percent.

Old Mutual head of economic research Johann Els said the weak economy and subdued price pressures outside of fuel price increases would allow the central bank to keep rates unchanged for the foreseeable future.

“The likely substantial petrol price increase of more than R1 per litre in October will push inflation back to 5.1 percent and my forecast sees inflation peaking early next year at around 5.5 percent, assuming a more stable rand and no further oil price increases,” Els said.

Trade war

The rand, which has tended to react negatively to any news of a trade war between the US and China, held steady as local factors dominated its movement. US President Donald Trump waited until after markets closed last night before announcing tariffs on $200 billion (R2.97 trillion) worth of goods on Chinese imports. 

“The lack of reaction could mean the market will trade in ranges as we await the response from China. We expect the rand to trade in a tight range as it awaits the end of the week with inflation data and an interest rate decision to come,” said Andre Botha, a senior currency dealer at TreasuryONE.

The slowdown in inflation mainly reflected softening prices of transport in the month. Jameel Ahmad, global head of currency strategy at FXTM, said overall the Sarb remained in a very unenviable position. 

“External uncertainties have left the rand victim to a significant period of market weakness that it is pressuring the Sarb to follow the steps taken by the Central Banks of Russia and of the Republic of Turkey to raise interest rates this month,” Ahmad said.

Annual core inflation rate, which excludes the cost of food, non-alcoholic beverages, petrol and energy, eased to 4.2 percent last month from 4.3 percent in the previous month.

Luigi Marinus, portfolio manager at PPS Investments, said the effect (of) the inflation data would be an important consideration for the Sarb.

– BUSINESS REPORT