The South African (SA) Rand weakened in early trade on Thursday, ahead of a much-anticipated interest rate decision by the SA Reserve Bank (SARB) later in the day.
The Rand traded at 16.45 against the Dollar, about 0.5% down from its previous close.
Fifteen of the 22 economists polled by Reuters expect the SA Reserve Bank to raise its benchmark lending rate by 25 basis points to 7.00% from 6.75%, while the remainder expect the bank to leave the rate unchanged.
At the bank’s last meeting, it kept rates unchanged, saying caution was needed as higher energy prices linked to the United States (US) and Israel war against Iran would push up inflation.
SA’s annual inflation quickened to 4.0% year on year in April, driven mainly by sharp fuel price rises linked to the US and Israel war against Iran.
Investec economist Lara Hodes said in a note that upside risks to inflation have increased as a result of the war in the Middle East and therefore the SARB is likely to hike rates by 25 bp, “acting pre-emptively to prevent any second-round effects from becoming embedded in inflation”.
Statistics SA will publish producer inflation numbers which could offer clues on the health of Africa’s most industrialised economy.
Economists at Nedbank said they expect producer inflation to increase from 2.3% in March to 3.5% in April, primarily driven by a sharp rise in fuel costs.
“This reflects the impact of higher oil prices following the closure of the Strait of Hormuz, alongside a weaker rand amid sustained geopolitical tensions in Iran, which have heightened risk aversion toward emerging markets,” the bank’s Economists said.
SA’s benchmark 2035 government bond was slightly firm in early deals, as the yield fell 6 basis points to 8.48%.
–Reuters–
