Rand falls on rate cut, retailers benefit

THE RAND shed as much as 1 percent against the dollar yesterday after the central bank unexpectedly cut its benchmark lending rate for the first time in five years.

At 5pm, the rand was bid at R13.013 to the dollar, 7.47c softer than at the same time on Wednesday. This was about 0.65 percent weaker compared to its New York close. It earlier fell over 1 percent to R13.065, its lowest level in almost a week.

The 25 basis point lending rate cut to 6.75 percent makes the rand less attractive compared to other currencies as the yield that can be reaped from local rates has now narrowed on the global stage.

“The rand weakened because of the effect on the differentials with developed markets who are beginning to hike rates,” said Halen Bothma, an economist at ETM Analytics.

Twenty-four of 27 economists polled by Reuters had forecast the bank would hold rates at 7 percent. Two predicted a 25-basis-point cut and one expected the repo rate to be cut by half a percent.

Governor Lesetja Kganyago cited weak growth and easing inflation as key factors behind the decision and denied the bank was affected by recent political attacks against its mandate to contain inflation and protect the currency.

Bonds firmed, with the yield on the benchmark government bond due in 2026 falling.

Meanwhile, stocks rose, with local retailers bolstered by the rate cut. The biggest advancers on the day were Truworths International, which rose 4.06 percent to R78.50 and Massmart, up 3.81 percent to R112.63.

The benchmark JSE Top40 index gained 0.34 percent to 47 748.68 points, while the all share index rose 0.36 percent to 54 287.32 points.