Rand holds steady as rates left unchanged

The rand posted marginal gains against the dollar and the JSE weakened on Thursday after the Reserve Bank kept interest rates unchanged and the US economy strengthened more than expected.

While the decision by the Bank’s monetary policy committee (MPC) to hold the repo rate at 8.25% was unanimous and widely expected, news that US GDP expanded 3.3% in the fourth quarter caught markets by surprise and adds to the growing view that the Federal Reserve will be in no rush to cut rates. That pushes out the likelihood of cheaper money locally.

“The tone of the MPC’s statement remained highly cautious, as it doesn’t see the battle against inflation as yet being won,” said North-West University Business School economist Raymond Parsons. “The MPC still sees upside risks to inflation in SA against the background of global uncertainties, inflationary expectations and sensitivity to currency weakness.”

The rand was bolstered by the news, though. “This does suggest a bit more of a hawkish interpretation of the MPC statement to provide some domestic excuse for its modest appreciation post the news release,” said IG senior market analyst Shaun Murison

The rand gained about 0.3% after governor Lesetja Kganyago’s media statement, but by 6.40pm it was little changed at R18.8959/$. Still, it had strengthened 0.41% to R20.46629/€ and was just under 0.1% firmer at R23.9883/£. The euro was 0.46% weaker at $1.0833.

The JSE all share lost 0.38% to 74,040.54 points and the top 40 eased 0.54%. Retailers jumped 4.7%, precious metals 0.3% and food producers 0.41%. Industrial metals fell 1.16%, financials 0.85%, banks 0.73% and resources 0.49%. The US GDP number was well in excess of the market’s forecast of 2.2% growth, underscoring the economy’ s ’continued resilience despite the Feds numerous interest rate hikes, Bloomberg reported.

The European Central Bank (ECB) left borrowing costs unchanged at the end of its policy meeting on Thursday. ECB president Christine Lagarde said it was “premature to discuss rate cuts” for the eurozone economy, but noted that the risks to economic growth remain “tilted to the downside”.

At 7.15pm, the Dow Jones industrial average was 0.1% firmer at 37,843.71 points and the S&P 500 was up 0.35%. In Europe, the FTSE 100 closed little changed, France’s’ CAC 40 added 0.11% and Germany s DAX 0.1%.

Gold was little changed at $2,014.11/oz, platinum lost 1.7% to $889.63/oz. Brent crude was 1.88% firmer at $81.42 a barrel.