Rand at strongest levels since December
The South African rand continues its recovery from record lows against the dollar in January, following talk that the Reserve Bank may hike interest rates again.
The local unit has made strong gains against the dollar since hitting a record low of R17.99 on 11 January, after president Jacob Zuma defended his well-documented appointment blunder within the finance department.
The president inexplicably sacked finance minister, Nhanhla Nene, in December, shocking the markets and sending the rand into a tailspin – a record low of R17.99 versus the dollar.
Within days the country had seen three different finance ministers in office, with Zuma forced into re-appointing Pravin Gordhan.
The rand has made good progress against the buck since mid January, after the Reserve Bank hiked interest rates by 50 basis points, to 6.75%.
On Wednesday, the rand gained more than 2% against the dollar – R15.48 – to its strongest level this year. This after data showed that the inflation rate has breached the South African Reserve Bank’s target of a 3% to 6% range – reaching 6.2% year-on-year in January 2016.
Economists suggested that the latest data ups the case for further interest rate hikes.
“What the rand is telling us is that markets would be open for more aggressive interest rate increases,” ETM Analytics market analyst Jana van Deventer told Reuters.
“Such interest rate increases would ultimately provide a buoying to the currency because it helps to restore the imbalances in the domestic economy and will help in attracting foreign capital.”
Similarly, Investec chief economist Annabel Bishop told EWN: “I think the Reserve Bank is looking forward to more interest rate hikes this year. I certainly anticipate them doing another 75 basis points at the very least, possibly they might not move at the MPC meeting because the rand has pulled back.”
In morning trade on Thursday, the rand traded at R15.49 against the dollar.
More on the rand
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SA interest rate hiked 50 basis points to 6.75%
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