Lesetja Kganyago. Picture: TREVOR SAMSON
Lesetja Kganyago. Picture: TREVOR SAMSON

The rand held steady at a three-week high against the dollar after the Reserve Bank’s monetary policy committee (MPC) kept interest rates unchanged, as expected.

Reserve Bank governor Lesetja Kganyago said the Bank was worried about the deteriorating inflationary outlook but emphasised that economic growth remains subdued. "We view the risks to inflation to be on the upside."

This is despite consumer inflation slowing to 4.9% year-on-year in August, down from 5.1% in July. However, economists expect it to rise towards the upper end of the Bank’s 3% to 6% target range in the coming months.

The MPC was divided on the decision with three members in favour of a 25-basis-point hike while four were for keeping rates on hold. Just three of 19 economists in a Bloomberg survey predicted a rate hike.

The rand was also supported by a weaker dollar, with the US currency on the back foot on concerns of an escalating global trade war and that US interest rates are set to rise in an environment of falling GDP growth.

Citigroup said in a report to clients that a worsening trade environment represented "a material risk to growth into 2019". It lowered its forecast for global growth this year to 3.3%, the first downward revision since October 2017, with the same rate expected next year.

Investors are now looking to next week’s US Federal Reserve meeting, with most expecting it to raise interest rates. According to Fed-fund futures tracked by CME Group, the chance of a rise now stands at 94%.

At 3.12pm, the rand was at R14.3973 to the dollar, from R14.6376. It was at R16.9394 to the euro from R17.0856, and at R19.1127 to the pound from R19.2390. The euro was at $1.1764 from $1.1672.

Local bonds showed little movement on the rate decision, while US treasuries remain under pressure in a weaker dollar environment. US treasury yields have been rising steadily throughout the week, surprising analysts who expected the latest flare-up in trade tension to stoke demand for treasuries and push yields lower, Dow Jones Newswires reported.

Instead, bond selling accelerated after the Trump administration said at the start of the week that it would impose a 10% import tax on about $200bn in Chinese goods, starting on September 24, with the rate rising in 2019. This news came after China hit back on Tuesday with another round of its own tariffs.

The US 10-year paper was last yielding 3.0751% from 3.0667%. The benchmark R186 government bond was last bid at 9.09% from 9.1% previously.