South African Rand Higher on SARB Rate Hike, Outlook Still Shaky say RMB
- Written by: Gary Howes
The South African Rand was an outperformer in global FX markets following the South African Reserve Bank's (SARB) interest rate cut. But, the outlook remains rocky according to Rand Merchant Bank.
The British pound to South African Rand exchange rate (GBPZAR) hit a record 21.96 on the 13th of November but has since reversed back to near-term support at 21.32.
The South African Reserve Bank raised the SA base rate by 25 basis points yesterday; bringing it up to 6.25%.
“They have concerns over the pace of inflation; particularly food price inflation due to a severe drought and, although they didn’t mention it, the weakness of the South African Rand is undoubtedly raising the cost of imports,” says Will Busby, FX Consultant at brokers HaloFX.
It is, however, offsetting the damage being done to SA exports due to rock bottom commodity prices and weak demand.
“The rand has been boosted by both the surprise SARB hike and by the favourable global backdrop, but the momentum is likely to be lost going into the weekend,” says John Cairns at RMB in Johannesburg.
Cairns notes that for the South African currency the performance of global commodity prices remains key and he says that while the rand certainly liked the hike, as much as half of its 1.5% gains can be ascribed to global factors rather than rates.
Latest Pound / SA Rand Exchange Rates
  | Live: 22.6039▼ -0.21%12 Month Best:25.4721 |
*Your Bank's Retail Rate
| 21.8353 - 21.9258 |
**Independent Specialist | 22.2874 - 22.3778 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Global markets have been trading risk-on, which provided the additional impetus to the rand after the rate move.
RMB believe some caution is justified.
“The rally in global equities has faltered, implying the same will probably be true in risk currencies today,” says Cairns.
Moreover, commodities remain under significant pressure.
“The fall in copper to a new post-crisis low and the drop in the Baltic dry freight index to an all-time low have no direct implication for SA but warn that our export prices could be the next to drop,” says Cairns.
