Rand takes fresh hit as sentiment sours towards emerging markets

The rand slumped nearly 2% against the dollar in mid-morning trade on Thursday, putting it on track for its worst monthly performance in more than two years.

The slide in the value of the local currency will likely exert pressure on the Reserve Bank, whose monetary policy committee is scheduled to meet in September to decide on interest rates. The meeting will take place against the backdrop of rising inflation, which is now at the upper end of the Bank’s 3% to 6% target band.

“The broad conclusion one can draw is that the environment is testing for emerging-market currencies,” said Halen Bothma, analyst at ETM Analytics.

The lingering economic crisis in Turkey continues to hold the rand hostage, as does uncertainty around divisive and controversial land reform.

The Turkish lira has been jittery for the better part of the week, after Moody’s Investors Service downgraded 20 of the country’s financial institutions, hurting sentiment towards emerging markets as an asset class.

This sentiment is also reflected in weaker local bonds, with yield on the benchmark R186 rising to just shy of 9.00%, from 8.93% at its last settlement on Wednesday.

Putting more pressure on the rand is a strong pound, due to EU negotiator Michel Barnier, on Wednesday, raising hopes of a good separation deal between the UK and EU.

At 11.13am, the rand was at R14.6186 to the dollar, from R14.3497. It was at R17.0857 to the euro from R16.7978 and at R19.0067 to the pound from R18.7047.