Rand strengthens as all eyes turn to the Reserve Bank

March 30, 2023 Stacey Andrews

South Africa’s rand and stocks rose on Wednesday (29 March) as regulations to manage the US banking crisis boosted global confidence.

All eyes have, however, turned to the expected rate hike by the South African Reserve Bank’s (SARB) this Thursday.

According to Nasdaq, fears over a global banking system failure as a result of the collapse of Silicon Valley Bank earlier this month were calmed.

This, in turn, returned some risk appetite to markets, adding interest to South Africa’s currency and stocks.

A decrease in risk aversion is a welcomed factor for the rand. On 27 March, prior to the Fed calming sentiment, Annabel Bishop, Investec chief economist, said that market caution and risk aversion limited rand gains from a less hawkish US Fed.

David Shapiro, an equity strategist at Sasfin, said that volumes and activity were low on the Johannesburg Stock Exchange; however, stocks are on a steady incline.

However, a slight positive movement for the domestic currency does not mean it is out of the woods, yet.

The rand has been the poorest performer among a group of 16 major currencies tracked by Bloomberg – depreciating roughly 6% against the dollar so far this year.

Bloomberg said that investors are valuing the currency more highly as a result of challenges, including the electricity crisis and the dire straits of the country’s national logistics, all undermining potential economic growth and driving up inflation.

Investors are now sitting tight, awaiting the SARB’s rate decision today.

The general consensus shared among analysts and economists alike is that the country faces another 25 basis point hike – taking the prime lending rate up to 11% and the repo rate to 7.5%.

The Bureau for Economic Research (BER) said that on the back of global issues, including fears of a global banking crisis, a volatile domestic market and a general downward trend for the rand exchange since the last rate hike, a 25 basis point hike is most likely.

A small handful of experts suspect that the hike could possibly be even higher at 50 basis points in light of a recent increase in headline inflation to 7%, up from 6.9% in January.

Although cash-strapped South Africans are likely to struggle to make increased monthly payments with a further rate hike, the SARB has been cemented on the fact that it will hike rates until inflation has cooled between its preferred threshold of between 3%-6%, ideally at 4%.

The rand is currently trading at: