Rand touches record low after rate hike

The rand tumbled to record lows on Thursday and the JSE surged after the Reserve Bank’s latest rate hike.

As widely expected, the Bank’s monetary policy committee raised the repo rate by a further 50 basis points, taking the benchmark to 8.25%, and the rand responded by slumping to R19.7868/$, an all-time low.

“In the post-MPC media interview, the SARB governor acknowledged that the risk existed of a recession emerging in the SA economy,” said North-West University Business School economist Raymond Parsons.

“Taken together with the SARB’s recent Monetary Policy Review warning that, allowing for the usual time lags, ‘the full impact of the cumulative rate hikes is yet to be felt ’— and in also describing GDP growth in SA as ‘fragile ’— the latest MPC decision inevitably raises the risk of ‘overkill’.”

At 6.25pm, the rand was 2.49% weaker at R19.7355/$, and also took a battering against the euro and pound, losing 2.27% to R21.1504/€ and 2.26% to R23.15/£, respectively. The euro was 0.3% weaker at $1.0717.

The JSE all share ended the day 0.73% higher at 76,174.61 points and the top 40 added 0.91%, driven mostly by industrial metals and industrials, which gained 1.88% and 1.23%, respectively. Resources rose 0.83% and precious metals 0.24%, but banks were down 0.62% and financials eased 0.38%.

Globally, investors are keeping a close eye on US debt-ceiling negotiations as default deadline rapidly approaches, and the Federal Reserve’s outlook on interest rates.

Reuters reported that talks between congressional leaders and President Joe Biden advanced on Thursday, adding that parties now need only to agree on $70bn in spending to solidify a deal.

Minutes from the most recent Fed meeting indicate a clear divide between members who are concerned about lagging effect of monetary tightening and those who believe more hikes are needed due to insufficient progress in taming inflation.

“Once more there’s a heavy focus on central banks and whether investors have been too optimistic about when and where the peak in interest rates will come, and by extension how soon after they’ll fall,” Oanda market analyst Craig Erlam said. “Markets are now pricing in another hike over the next couple of meetings, even if the Fed holds in June.”

At 7.13pm, the Dow Jones industrial average was 0.43% weaker at 32,658.06 points, though the S&P 500 had gained 0.72%. Markets in Europe were also weaker, with London’s FTSE 100 down 0.74%, France’s CAC 40 losing 0.33% and Germany’s DAX easing 0.31%.