Why the rand will probably weather the rate cut
The Reserve Bank’s surprise rate cut — the first reduction in five years — is not expected to break the local currency’s resilience
SA’s first interest rate cut in five years, and a surprise one at that, probably will not be enough to break the rand’s resilience. The currency fell as much as 1.2% after the Reserve Bank reduced its key rate on Thursday to 6.75% from 7% to boost an economy in recession, defying predictions of 20 out of 23 economists in a Bloomberg survey. But it soon recovered some of its losses to trade 0.9% weaker at R13.0343/$ by the New York close. It gained 0.2% to R13.0083 as of 8.53am on Friday. The rand has been one of the main beneficiaries of an emerging-market rally this year, driven by the belief that the US Federal Reserve will enact rate increases slowly. The high returns on South African bonds mean it is unlikely to weaken much, especially as the central bank will be cautious about further cuts with inflation near the top of its target range, according to Aberdeen Asset Management and Rabobank. "It’s not obvious why the currency should weaken from here," said Kevin Daly, a money man...
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