Rand firms after another rate cut

The rand firmed to its best levels in nearly two months on Thursday after the Reserve Bank delivered its fourth repo rate cut of the year.

The Bank cut interest rates by 50 basis points (bps), a move expected to bring further relief to SA’s battered economy, most of which is still under lockdown. The cut takes the benchmark rate to 3.75%, its lowest level since the repo was introduced in 1998.

The latest cut was in line with the median forecast among 20 economists polled by Bloomberg.

“With inflation expected to continue to slow in the coming months, further cuts might be on the cards,” said Peregrine Treasury Solutions executive director Bianca Botes.

“Risk appetite towards emerging markets will continue to be the main driver of further rand movements in the weeks to come, with resistance to stronger levels being tested.”

The local currency, which has gained about 5.6% against the dollar so far in May, has been boosted by improved sentiment as more economies reopen amid optimism about a potential coronavirus vaccine.

The rand firmed as much as 2.2% immediately after the rate announcement, reaching an intraday best of R17.5097/$, according to Infront data, its best level since March 27. At 5.44pm, the rand had strengthened 1.46% to R17.6464/$, 1.7% to R19.3236/€ and 1.5% to R21.5806/£. The euro had lost 0.22% to $1.0954.

The yield on the R2030 government bond fell 8bps to 8.89%. Bond yields move inversely to their prices.

The JSE tracked weaker global markets as caution about the longterm effects of the coronavirus and US-China tension weighed on investor sentiment.

The all share lost 2.15% to 51,022.76 points and the top 40 2.37%. The gold mining index dropped 7.51%, platinum miners 4.5% and resources 3.83%. Banks and financials gained 3% and 1.36%, respectively.

“Stock markets were back in negative territory on Thursday. The prospect of economies reopening and returning to something that resembles normal has, at times, been very positive for markets, as have positive vaccine and treatment trials, but it hasn’t all been good news,” said Oanda senior market analyst Craig Erlam.

“There’s been some setbacks in countries previously lauded for their handling of the spread and results, putting more emphasis on the dreaded second wave if the exit strategy isn’t handled properly. On top of that, tension between the US and China has increased dramatically, which is making investors nervous.”