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Rand firms, focus turns to rate decision

And markets are up again.
Image: Waldo Swiegers, Bloomberg

South Africa’s rand firmed in afternoon trade on Thursday as focus shifted to the central bank’s policy decision next week, with market participants expecting rates to remain at a record low to support the economy.

At 17:00, the rand traded at R15.15 versus the dollar, 0.57% firmer than its previous close.

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Most market participants expect the South African central bank to hold interest rates at 3.5%, a record low, through 2021 in order to support a local economic recovery.

“We know that the monetary policy committee will base their decisions on data which could go against the current majority economist outlook,” Warren Venketas, an analyst at IG in Johannesburg, said in a note.

“Therefore, the potential for a surprise cut should not be completely disregarded.”

The South African Reserve Bank cut its repo rate by a cumulative 300 basis points last year to mitigate the impact of the Covid-19 pandemic.

A rate cut typically causes the rand to weaken because it lessens the appeal of investing in rand assets.

The Johannesburg Stock Exchange (JSE) resumed its winning streak on Thursday, with the main indices surpassing their recent all-time highs on hopes the US economy would benefit from a $1.5 trillion (R22.6 trillion) aid plan from President-elect Joe Biden.

The benchmark FTSE/JSE All Share index closed up 0.65% at 63 885 points while the bluechip FTSE/JSE Top 40 companies index ended up 0.68% to 58 736 points.

Both indices were at all-time highs, following most emerging and developed markets overseas.

The rally was largely led by market heavyweight Naspers and its subsidiary Prosus, together representing a quarter of the weight of the main index, which were up 4% and 3% respectively as tech stocks firmed globally.

But the bank index, often considered a reflection of local economic prospects, has been lacklustre this year, underscoring worries about local economic recovery and rising coronavirus cases. The index down 0.71% on Thursday.

Government bonds firmed, with the yield on the 2030 bond dipping two basis points to 8.76%.

COMMENTS   1

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Don’t see the “positive” effect with them dropping 300 points?????

Difficult to think things could have been worse if they did not drop.

End of comments.

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