28 January 2016

South Africa: Rand Cheers Steep Rate Hike

The rand on Thursday afternoon cheered Sarb governor Lesetja Kganyago's announcement that the South African Reserve Bank's monetary policy committee (MPC) has decided to hike interest rates by 50 basis points to 6.75%.

This was broadly in line with expectations.

The rand immediately firmed to R16.27 against the greenback from R16.33 and from the previous close of R16.43, following the announcement and while Kganyago was still speaking. The local unit took a significant knock following the axing of Nhlanhla Nene on December 9 and his replacement by unknown ANC MP David van Rooyen, only to be replaced three days later by Nene's former boss Pravin Gordhan.

By 15:46 the rand traded 1.09% firmer on the previous close at R16.25.

Kganyago said the Sarb's latest inflation forecast has deteriorated. Inflation is still expected to breach the upper end of the target and remain outside its limits for the entire focus area.

The deterioration in forecast is mainly due to the exchange rate assumption and expected higher labour costs, he said at the end of the Sarb's first MPC meeting for the year.

The hike in the repo rate means the prime lending rate will now be 10.25%.

Lending rates have risen by a cumulative 175 basis points since late January 2014.

Source: Fin24

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