MARKETS WRAP

THE RAND gave back its early gains yesterday, sliding after the central bank delivered a surprise cut to lending rates to address the deepening economic impact of the coronavirus outbreak.

At 5pm, the rand bid at R18.28 to the dollar, 28 cents softer that at the close on Thursday, having dipped as low as R18.37 in the wake of the unexpected 100 basis points (bps) cut by the SA Reserve Bank (SARB).

The central bank had already cut rates by 100 bps in March and by 25 bps in January and the latest cut brought rates to a record low of 4.25 percent, with more reductions likely.

The rand had eked out some gains in early trade as riskier currencies were lifted by trade data from China, which painted a less gloomy picture of the economic fallout from the pandemic. But the rate cut clipped the currency’s advance, with the policy move narrowing the yield return, or carry, on SA assets, as well as spooking some rand bulls betting the currency would rally further.

“We don’t think the SARB is done here,” said Jeffrey Schultz, economist at BNP Paribas.

“Like every other economist the bank is making forecasts on the go. The situation is very fluid. There’s probably scope for the bank to act a little bit more and take real policy rates down to effectively zero,” Schultz said.

The real or effective interest rate is the return an investor in the currency or local bonds expects to receive, minus inflation. That rate stands at around 5 percent, but has come down sharply with falling lending rates and benign inflation.

The bank said the cut was a response to the extension of the lockdown and the hit to the economy, which the bank expects to contract 6.1 percent in 2020.

In equities, the blue chip JSE Top40 index advanced 3.98 percent to 45 580.91 points, while the all share index gained 3.88 percent to 49 874.57 points. I Reuters