Weak rand could soon lead to rate hike soon

Sustained rand weakness is raising the prospect of a Reserve Bank interest rate increase‚ as risk-off trade on global markets turns against SA specifically‚ according to Investec chief economist Annabel Bishop.

There is little momentum behind domestic factors that would support a stronger rand‚ and should the rand sustain a breach above R15/$‚ the Bank may raise rates 25 basis points as soon as September‚ Bishop said.

The rand has been battered along with other emerging-market currencies in August by rising concern about the spillover effects of Turkey’s financial crisis.

The rand was the second-worst performing currency in the first two weeks of the month‚ weakening by about 17%‚ beaten only by the lira’s 45% depreciation.

As investors sold off emerging-market assets‚ the rand was hit by a spate of bad news‚ including a parliamentary bill introduced by the EFF to nationalise the Reserve Bank‚ and further comments by ANC officials on expropriation of land without compensation.

“The ongoing populist direction of SA’s actual and proposed economic policies continues to damage investor sentiment and economic growth‚” said Bishop.

A weakening of institutions and competitiveness‚ rising government debt ratios‚ and half a decade of weak economic performance meant there was little impetus for rand strength from purely domestic factors‚ said Bishop.

This would change if SA moved away from the increasingly populist direction of recent years‚ towards a more investment-friendly approach‚ she said.

The Turkish lira has stabilised after Turkey’s central bank rolled out a number of market mechanisms‚ and Turkish supporter Qatar pledged $15bn in loans.

The rand was stronger on Monday morning‚ firming by 1.28% to R14.507 at 10am.

Analysts said the market would be closely watching developments in Turkey‚ as well as local inflation data due on Wednesday.

Karl Gernetzky-BusinessLIVE

 

 

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