Rand firms as CPI points to rate hike
The rand firmed after worse-thanexpected inflation data on Wednesday, while the JSE tracked firmer global markets as investors focused on the pending publication of the minutes of the Federal Reserve’s policy meeting.
Local consumer inflation accelerated to an annual rate of 7.6% in October, up from 7.5% in September and above the Reuters consensus of 7.4%, adding to expectations the Reserve Bank will increase rates further after its monetary policy committee meeting on Thursday. Core consumer price index (CPI), which excludes food, nonalcoholic beverages and fuel and energy costs, rose 5% year on year in October from 4.7% in September.
“The SARB discussed a 100 basispoint hike at the last MPC meeting, but instead hiked by 75 bps, though it may choose to deliver the 100 bps increase at its interest rate decision tomorrow [Thursday] ... given the deterioration in the inflation figures,” Investec chief economist Annabel Bishop said.
“A large degree of uncertainty remains for the economic and market outlook. Price inflation increased in October in some other countries as well, with volatility in commodities prices likely to persist on the high levels of uncertainty,” she said. “The Russian/Ukraine war, [the effect of] severe Covid lockdowns in China on its economic activity and concerns over global economic growth all add to the high levels of uncertainty, which will also worry the SARB as it targets inflation over the next six to 24 months.”
At 6.50pm, the rand had strengthened 1.14% to R17.0436/$ after briefly dipping below R17 earlier in the day, and gained 0.53% to R17.6619/€. But it was 0.2% weaker at R20.5063/£. The euro was 0.58% firmer at $1.0362.
The Fed’s eagerly awaited minutes will be scrutinised for signs of a pivot towards slowing and eventually halting its series of rate hikes. Earlier this month, chair Jerome Powell said rates would probably have to go higher than the central bank’s quarterly projections in September, which showed a peak of 4.5% to 4.75%. According to Bloomberg, investors see rates topping out at about 5% next year.
The JSE all share, meanwhile, added 0.9% to 72,891.45 points, with the gains broad-based, while the top 40 added 1.01%.
At 7.30pm, the Dow Jones industrial average was barely changed at 34,095.07 points, while the S&P 500 was up 0.26%. European markets closed slightly firmer, with London’s FTSE 100 adding 0.27% and France’s CAC 40 up 0.32%.