Rand gains as Reserve Bank holds repo rate at 6.75%‚ as expected

The Reserve Bank kept interest rates unchanged on Thursday‚ when the monetary policy committee (MPC) wrapped up its first meeting of 2018.

With a number of risk events on the horizon‚ the decision was expected by the majority of analysts‚ and leaves the repo rate at 6.75%‚ where it has been since the July 2017 cut of 25 basis points — the first cut in five years.

Reserve Bank governor Lesetja Kganyago said that since the previous meeting of the MPC‚ the rand had appreciated by 13.1% against the dollar‚ by 9.6% against the euro‚ and by 10.6% to the pound on a trade-weighted basis.

He did warn‚ however‚ that “in the near term‚ the rand is expected to remain sensitive to sentiment generated by political developments. The lingering prospect of a credit-ratings downgrade to sub-investment grade by Moody’s [also] continues to weigh on the longer-term outlook for the rand.”

Within a few minutes of the decision being announced‚ the rand strengthened to R12.19 to the dollar‚ from R12.25 prior to the governor's speech.

A Bloomberg consensus of 19 economists and analysts showed that 13 expected rates to be unchanged‚ while five forecast a cut of 25 basis points‚ with one predicting a 50-basis-point drop.

Prior to the MPC meeting‚ Standard Bank trader Warrick Butler said there was no way the Reserve Bank was going to cut rates a month before a crucial sovereign-rating announcement by Moody’s‚ “especially in light of the budget speech the day before and the cost implications of the new‚ free-education policy announced in December”.

Finance Minister Malusi Gigaba is set to deliver the annual budget speech in Parliament on February 21. In his medium-term budget policy statement in October last year‚ Gigaba highlighted a R50bn budget deficit‚ without detailing any plans to resolve the issue.