Rand weakens after Reserve Bank’s interest-rate cut

The rand was weaker on Tuesday afternoon, as investors digested an unexpected interest rate cut by the SA Reserve Bank, and SA entering the third week of the extended national lockdown.

The Reserve Bank's 100 basis-points cut was a surprise, as it had previously indicated to the market there would be no further cuts in 2020, said Peregrine Treasury Solutions executive director Bianca Botes.

At 12.48pm, the rand had weakened 1.23% to R18.3265/$, 1.51% to R20.0489/€ and 1.41% to R22.9765/£. The euro was up 0.29% to $1.094.

“Even though Reserve Bank has not indicated it formally, we can assume that this move comes as a reaction to the extension to the lockdown and the anticipated effect that it will have on the SA economy,” said Botes.

“It also indicates to us that the Reserve Bank is not too concerned about the inflationary pressure that this could cause, given the low level of demand that we are currently witnessing,” she said.

The rand has now lost more than a quarter of its value against the dollar so far in 2020, as the ongoing sell-off caused by the Covid-19 pandemic continues to put immense pressure on emerging-market currencies. The local currency is expected to remain volatile, analysts said.

tsobol@businesslive.co.za