Rand alters little after a tumultuous week

The rand was trading at R17.62 per dollar in early trade, not far from its previous closing level of R17.61.
After a volatile week, the rand was little changed in early trade on Friday.
At 0625 GMT, the rand was trading at R17.62 per dollar, not far from its previous closing level of R17.61.

The rand was under pressure in the early part of the week due to expectations for aggressive monetary policy tightening by the US Federal Reserve, which delivered a 75 basis point interest rate hike on Wednesday.

It recovered lost ground on Thursday when the South African Reserve Bank raised interest rates by 75 basis points.

The benchmark 2030 bond issued by the South African government was slightly weaker in early trade, with the yield rising 1 basis point to 10.60%.

The rate hike is expected to hurt the economy as a whole.

The prime lending rate is expected to rise from 9% to 9.75%, putting additional strain on already beleaguered consumers. According to Reserve Bank data, this should begin to dampen credit demand, which has already shown signs of plateauing over the last three months.

The latest interest rate hike returns South Africa to pre-Covid levels, but with soaring inflation and nationwide load shedding. In June 2020, inflation fell to 2.1% due to a sharp drop in oil prices and a reduction in interest rates to 3.5%, the lowest level in decades.

Jacques Celliers, CEO of FNB, says "We are witnessing a concerted effort by the South African Reserve Bank and numerous other central banks around the world to mitigate the effects of higher inflation,".

Mamello Matikinca-Ngwenya, FNB Chief Economist, says, “We expect the Reserve Bank to increase the repo rate by 50bps at the November MPC meeting, pushing it to 6.75%, the level where we think the policy rate will peak before falling in early 2024.”

The government will auction inflation-linked bonds and Treasury bills later on Friday.