Rand under pressure ahead of interest rate decision on Thursday

After being little changed on Tuesday morning the rand deteriorated as the day went on as uncertainty about the outlook on domestic interest rates weighed, and Turkey signalled it would cut rates at its next policy meeting on Thursday.

The Reserve Bank will probably raise interest rates by 25 basis points to 3.75% when its monetary policy committee wraps up its scheduled meeting on Thursday, according to a Bloomberg median estimate. This will be the first time in three years that the Bank has tightened policy.

Policymakers around the world are under pressure to rein in rising prices without jeopardising fragile global economic recovery.

In SA, consumer inflation is expected to have risen at an annual rate of 5% in October, according to Bloomberg median estimate, which is above the 4.5% midpoint preferred by the Bank.  Stats SA will release the data on Wednesday.

Investec chief economist Annabel Bishop said the rand could weaken if the central bank keeps rates on hold on Thursday, citing the tightening cycle that has begun in a number of other countries.

“The economy has seen a quicker-than-expected rebound from the harsh lockdown restrictions of last year due in large part to the revisions of the size of the economy, and inflation is quickening, which could also tip the [Bank’s] hand into delivering a rate hike on Thursday,” Bishop said in a note.

The rand changed hands to the dollar at R15.24/$ in early trade, while the yield on benchmark R2030, which moves inversely to the price, was at 9.38%.

By 10.50pm, however, the rand had fallen significantly, down 1.67% to R15.49/$, 1.21% to R17.5269/€ and 1.75% to R20.7984/£. The R2030 yield has risen to 9.49%.

This left the local unit down more than 2.5% to the dollar in the past week, while it has fallen more than 5% so far in 2021. 

Fear entered markets late on Tuesday that Turkish President Recep Tayyip Erdoğan may force an interest rate cut at the country’s policy meeting on Thursday. This caused the lira to fall as much as 2.8%, dragging other emerging-market currencies down with it.

Elsewhere, Brent crude rose 0.4% to R82.46 a barrel, after recently peaking at a seven-year high of about $86 a barrel.

Update: November 16 2021
This story has been updated with new numbers and information throughout.

mahlangua@businesslive.co.za