South Africa’s rand and stocks rose on Wednesday (29 March) as regulations to manage the US banking crisis boosted global confidence.<\/p>\n
All eyes have, however, turned to the expected rate hike by the South African Reserve Bank’s (SARB) this Thursday.<\/p>\n
According to Nasdaq, fears over a global banking system failure as a result of the collapse of Silicon Valley Bank earlier this month were calmed.<\/p>\n
This, in turn, returned some risk appetite to markets, adding interest to South Africa’s currency and stocks.<\/p>\n
A decrease in risk aversion is a welcomed factor for the rand. On 27 March, prior to the Fed calming sentiment, Annabel Bishop, Investec chief economist, said that market caution and risk aversion limited rand gains from a less hawkish US Fed.<\/p>\n
David Shapiro, an equity strategist at Sasfin, said that volumes and activity were low on the Johannesburg Stock Exchange; however, stocks are on a steady incline.<\/p>\n
However, a slight positive movement for the domestic currency does not mean it is out of the woods, yet.<\/p>\n
The rand has been the poorest performer among a group of 16 major currencies tracked by Bloomberg – depreciating roughly 6% against the dollar so far this year.<\/p>\n
Bloomberg said that investors are valuing the currency more highly as a result of challenges, including the electricity crisis and the dire straits of the country’s national logistics, all undermining potential economic growth and driving up inflation.<\/p>\n
Investors are now sitting tight, awaiting the SARB’s rate decision today.<\/p>\n
The general consensus shared among analysts and economists alike is that the country faces another 25 basis point hike – taking the prime lending rate up to 11% and the repo rate to 7.5%.<\/p>\n
The Bureau for Economic Research (BER) said that on the back of global issues, including fears of a global banking crisis, a volatile domestic market and a general downward trend for the rand exchange since the last rate hike, a 25 basis point hike is most likely.<\/p>\n
A small handful of experts suspect that the hike could possibly be even higher at 50 basis points in light of a recent increase in headline inflation to 7%, up from 6.9% in January.<\/p>\n
Although cash-strapped South Africans are likely to struggle to make increased monthly payments with a further rate hike, the SARB has been cemented on the fact that it will hike rates until inflation has cooled between its preferred threshold of between 3%-6%, ideally at 4%.<\/p>\n
The rand is currently trading at:<\/p>\n