Rand weakens after Reserve Bank cuts interest rate

Picture: REUTERS
Picture: REUTERS

The rand erased gains on Thursday afternoon as the SA Reserve Bank cut the repo rate by 25 basis points for the first time since July.

Shortly after the announcement the rand had weakened 0.23% to R14.4218/$ while it had firmed 0.13% to R14.3702 just 11 minutes before that. It had softened 0.4% to R16.1078/€ and 0.48% to R18.848/£. 

The R2030 government bond was little changed with the yield rising 1.5 basis points to 9.07%. Bond yields move inversely to their prices.  

While lower interest rates could stimulate economic activity, they would make SA bonds less attractive to investors on the hunt for higher-yielding investments.

The median forecast among economists polled by Bloomberg was for the repo rate to remain unchanged at 6.5%. 

Analysts said the Bank would likely shy away from a cut with the February budget just around the corner, and the result of a ratings review by Moody’s Investors Service expected on March 27.

“While the rand has benefited from improvements in global sentiment, high long-term bond yields reflect concerns about domestic growth prospects and fiscal risks,” Bank governor Lesetja Kganyago said.

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