Turkey skirmish weighs on the rand

THE rand retreated markedly against the dollar this week, undermining the Reserve Bank’s efforts to keep inflation within a target range.

Last week, the bank hiked interest rates by 25 basis points even as it revised down its economic growth forecast for this year.

Governor Lesetja Kganyago’s concerns are the effects of a weaker currency on inflation, which is expected to breach the upper end of the 3% to 6% target band next year. This happens at a time when food prices are expected to rise because of the drought that threatens to reduce South Africa’s maize harvest.

The rand initially responded positively to the rate hike, the second one this year, before reversing course this week.

“The hike in interest rates seemed to have done the trick but the geopolitical situation in Russia and Turkey seems well intent on making all our lives rather difficult,” Standard Bank trader Maemo Rametse wrote in a note.

He said the Turkish currency was bearing the brunt of the skirmish, but this seemed to be translating into rand weakness, too.

The domestic currency weakened to lows of R14.36 to the dollar on Friday after strengthening to highs of R13.89 last week, illustrating the big price swing.

The rand has come under relentless pressure throughout this year — it is down 23% to the dollar — mainly because of a strong dollar as the US Federal Reserve considers raising interest rates next month.

Overall, global markets were fairly reticent and mixed on the week, with the JSE All Share index ending just over 1% lower at 51 637.28 points, but European equities managed to muster some gains.

Ratings agencies Fitch and Standard & Poor’s will be closely watched on Friday, when they are expected to deliver their respective assessments on the domestic economy.

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