File photo: REUTERS
File photo: REUTERS

The rand was a lot stronger on Friday morning, extending the rally that followed the surprise decision by the Reserve Bank’s monetary policy committee (MPC) to keep interest rates on hold.

Higher local interest rates tend to attract foreign capital via bond inflows.

In justifying the decision, Bank governor Lesetja Kganyago pointed to a number of factors that he said posed potential risks to the inflation outlook.

These included the possibility of higher rates later in the year in the US and UK, which could divert flows from emerging markets, thus weakening the rand, a key driver of inflation.

Political risks include that the ANC is heading to its elective conference in December to choose a new leader to replace President Jacob Zuma.

"We see the decision as only a pause in the cutting cycle," Rand Merchant Bank currency strategist John Cairns said in a note.

"Given that inflation could dip below 4% next year, it seems only a matter of time before another cut."

At 9.53am, the rand was at R13.2035 to the dollar from R13.2809, at R15.8415 to the euro from R15.8571 and at R17.9472 to the pound from R18.0410.The euro was at $1.1998 from $1.1941.

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