Rand at five-month high after mildly hawkish rate cut
The Reserve Bank cut interest rates by 25 basis points on Thursday, with market expectations of a 50 basis point cut continuing to unwind a little
The rand was at its best level against major global currencies since February on Friday morning, continuing to benefit from the prospect of loose monetary policy globally and a cautious Reserve Bank stance domestically.
The Bank cut interest rates 25 basis points (bps) on Thursday, but dampened expectations for further cuts, citing an uncertain global economic outlook as well as structural problems within SA’s economy.
Markets had partially priced in a 50 bps cut, with the rand gaining 1.22% against the dollar on Thursday, and extending gains a little on Friday.
At 9.42am the rand was 0.16% up at R13.8164/$, 0.34% firmer at R15.5551/€ and 0.32% stronger at R17.3101/£. The euro was 0.16% weaker at $1.1259.
PODCAST | Business Day Spotlight - SA needs an interest rate reprieve
The yield on the benchmark R186 government bond was 0.5 points lower at 7.97%. Bond yields move inversely to bond prices.
Global risk assets were given a further boost on Thursday by comments by New York Federal Reserve president John Williams, who said that central bankers should act quickly to address signs of economic distress, rather than waiting for more serious economic difficulties to emerge.
While markets were viewing this as a further sign that the Fed will move to cut rates aggressively, the New York Fed itself took the unprecedented move of telling the market not to read too deeply into Williams’s comments, said TreasuryOne senior currency dealer Andre Botha.
Expectations of the Fed cutting interest rates by 50 bps has risen, with the market pricing in a 45% chance of this on Friday morning, according to Bloomberg data.
There is little major local or international data on Friday to give markets direction, with markets watching for political developments, as well as digesting Thursday’s events.
Reports have suggested that the US navy shot down an Iranian drone overnight over the Straits of Hormuz, while former President Jacob Zuma continues his testimony before the state capture inquiry on Friday.