Rand gets reprieve as Fed tempers expectations of rates hike

The rand held on to overnight gains in early trade on Thursday after the US Federal Reserve said it was in no rush to raise interest rates, even as it announced the reduction of its huge bond-buying programme, which the markets had widely anticipated.

Addressing a media conference, Fed chair Jerome Powell said the US economy was yet to reach the so-called maximum employment and reiterated that higher inflation was transitory.

The rand, which has been sensitive to perceptions of change in US monetary policy, recovered from R15.50/$ to R15.27/$ as Powell’s speech was interpreted as dovish.

The focus now shifts to the Bank of England, which is holding a monetary policy meeting this afternoon, where it could decide to tighten its policy to fend off rising prices.

Signs of runaway inflation, driven in part by supply-chain disruptions, are turning out to be a bugbear for policymakers around the world. Central banks have an unenviable task of keeping inflation in check without choking the global economic recovery by aggressively increasing borrowing costs.

Elsewhere, Brent crude recovered slightly in early trade after dropping a hefty 3% overnight ahead of a scheduled meeting later in the day by oil cartel Opec and its allies to map out output. The so-called Opec+ is under pressure to ramp up production in a move that will soften prices.

Brent crude was up 0.41% to $81.54 a barrel in early trade, having risen 58% since the start of 2021 and contributing to worries on the outlook for higher inflation around the world.

Asian markets were mostly higher, taking their cue from Wall Street, which closed at record highs. The JSE could follow suit, though a relatively stronger rand could keep gains in check for big rand-hedge stocks. 

mahlangua@businesslive.co.za