Rand Remain Extremely Weak

South Africa’s rand remains weak as it awaits global markers shift as it remains at R18.30/USD. According to Investec chief economist, Annabel Bishop, “the rand is seeking a directional driver as a risk averse environment persists in global financial markets, and so for EM markets ad currencies.” Bishop said the momentary policy globally is also seen to likely have some divergence.

The statement by the FOMC was not clear on the financial markets taking the latest Feb interest decision meeting as reaching the highest range for the fed funds (terminal rates) in the current US interest rate hike cycle.

ECB President, Christine Lagarde said, “(w)e have more ground to cover and we are not pausing, that is extremely clear”.

The ECB deposit rate is now at 3.25%, lagging the rapid pace of hike in the US.

According to Investec in South Africa, “a 25bp hike is fully factored in for the repo rate, and indeed the FRAs are pricing in a 33bp lift at SA’s meeting on 25th, still leaving some space for a repeat of the last MPC move when the SARB lifted its Bank rate by 50bp.”

The US has hiked by subsequential 500bp in its current cycle, and South Africa by only 425bp causing the rand to weaken again the US dollar.

“Consequently, it is no surprise that the rand has weakened substantially over the past twelve months of risk-off in global financial markets, from R14.50/USD to R18.50/USD, as the US dollar has strengthened and the rand weakened.

“The rand has also reached R20.43/EUR and R23.31/GBP, from 15.65/EUR and R18.77/GBP mid-April 2022, with this broad based rand weakness most likely to add to inflationary pressures in South Africa as the pass through effect has escalated,” Bishop concluded.

Source: Investec