Rand gains with SARB poised for first rate cut in four years
The rand gained Thursday morning ahead of a South African Reserve Bank interest rate decision, where the central bank is expected to deliver its first cut since July 2020.
The currency strengthened 0.1% to 17.5331 per dollar by 7 a.m. in Johannesburg, hovering around its strongest level since February of last year.
SARB Governor Lesetja Kganyago is expected to announce a 25-basis-point reduction in the benchmark rate to 8%, according to 21 of 22 economists surveyed by Bloomberg. One economist predicts a larger, 50-basis-point cut.
The SARB’s decision follows the US Federal Reserve’s move to lower its benchmark interest rate by half a percentage point on Wednesday. Fed Chair Jerome Powell cautioned that the decision to cut by 50 basis points rather than 25 should not be seen as indicative of the future pace of easing.
US rate cuts would normally be expected to give some relief to emerging-market currencies like the rand as some investors in US assets seek higher returns elsewhere. But they can also set off a chain of other cuts around the world, with policy makers following the US to provide stimulus to their own economies.
“I think on the margin there is a bit of a higher probability that SARB goes 50 bps now,” said Brendan McKenna, emerging-markets economist and FX strategist at Wells Fargo Securities.
However, “rate differentials with the US are already low, leaving a bit less room for a bigger cut upfront,” he said. “If the rand continues to perform well, maybe SARB can pick up the pace of easing later this year after a gradual start.”
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