The rand rallied to below R15.10 against the dollar on Thursday after Reserve Bank governor Lesetja Kganyago announced a 25 basis-point increase in the repurchase rate to 7%, citing upside risks to the inflation forecast and the protracted period of the expected breach of the inflation band.
The Sarb’s targeting range for inflation is between 3% and 6%. Consumer inflation breached the ceiling last month when it rose to 118 index points.
By 16:20 the rand traded at R15.08 versus the dollar from R16.20 the same time on Wednesday following another bout of political turmoil.
The admission by Deputy Finance Minister Mcebisi Jonas that he was offered the position of finance minster by a member of the Gupta family opens the deep wounds and fissures surrounding leadership and governance in South Africa.
“What a wild ride, this time yesterday we were at 16.20 and now we’re trading under 15.20. A dovish fed gave impetus to risk asset to move lower and the rand lapped it all up along with other emerging markets.
“The rand wasn’t done there as interest rates were unexpectedly hiked and it looks like international markets are taking a liking to the additional yield pick up,” said Wichard Cilliers, chief dealer at TreasuryOne.
Kganyago said the Sarb is expecting inflation to remain above 6% for an extended period, perhaps until 2018.
He cited food inflation as the main culprit of inflation breach.
The repo rate is the rate at which the Sarb lends money to commercial banks, which in turn charges consumers a prime lending rate. The latest increase took the prime lending rate to 10.5%.
Cilliers said the big move of the day has been caused by the US Fed meeting on Wednesday night, stating that they will look at the economy to recover further before they hike.
“This has pushed the hike expectations out further into 2016. This has helped emerging market currencies. Oil and other commodities also jumped around 2% higher.
“All the political risk will still weigh on the ZAR, but for now in the short term the ZAR has taken a breather thanks to the US,” he said.