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The rand took a boost from the Reserve Bank's interest rates decision yesterday

by , 23 May 2014

The rand rallied after Reserve Bank governor Gill Marcus announced that the monetary policy committee (MPC) decided to keep interest rates unchanged. Some analysts thought the rand would weaken if rates didn't rise, but the opposite was true. Let's take a closer look at what led to the rand's rally…


The rand looks set to end the week higher

The rand was trading “slightly weaker against the dollar” this morning, says BDLive. But the local currency was still at “firmer levels than earlier in the week” following the MPC’s meeting.

The rand is “lacking momentum to break through a key resistance area at the 10.30 level,” reports IOL. The rand closed last night at 10.3280 to the dollar after SA’s central bank decided to keep its repo rate at 5.5%.

This was in spite of data revealed by Stats SA on Wednesday showing that inflation had crept up to 6.1% in April. This is slightly higher than the Reserve Bank’s target range of between 3% and 6%.

Investors are looking to emerging markets for higher yields

But investors perceived Ms “Marcus’s hawkish comments and global appetite for high yielding assets,” says MoneyWeb. But with little coming up that could help the rand strengthen, it might “struggle to take meaningful strides past its previous high”.

The rand’s reaction to the news saw it move in a way that surprised some analysts, notes iAfrica. These analysts thought the currency would weaken if rates stayed the same.

Holders of the rand would “have no incentive to increase their rand holdings because their returns would remain constant,” adds iAfrica. Higher interest rates make the rand a higher yielding currency.

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A technical strategist at Barclays Africa, Judy Padayachee, said that they’re expecting the rand to consolidate at the moment, says IOL. Especially given that it’s a public holiday in the UK and the US on Monday.

The rand is currently trading at 10.37 to the dollar, 14.11 to the euro and 17.46 to the pound.

Good news for inflation if the rand continues to consolidate and strengthen.



The rand took a boost from the Reserve Bank's interest rates decision yesterday
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