On Thursday night, the South African rand hit a new record low overnight, falling to R19.8279/$. Over the past year, the currency has now lost roughly 26% of its worth. It has fallen 8% just in the last two weeks since the US claimed that Russia got armaments in South Africa.
Following the meeting of the SA Reserve Bank’s monetary policy committee on Thursday, the rand saw yet another unexpected sell-off.
While the 50-basis point increase in the rate of repossession to 8.25% was broadly anticipated, market observers disagree on the cause of the currency’s bleeding.
Some analysts attribute the downturn to Reserve Bank Governor Lesetja Kganyago’s less pessimistic outlook for rate increases in the future.
According to Kganyago, the bank has been claiming for some time that its monetary policy is tightening but that it has not yet entered “restrictive territory.”
“Now, we have just reached restrictive territory. We have got to see the effects of this policy stance and what it means.” This was seen as an indication that the bank wanted to avoid making any more rate increases.
International investors find rand assets more appealing as interest rates rise. However, other nations continue to contemplate rate increases, which would make the rand less attractive.
Others, however, contend that worries about the economic repercussions of yet another dramatic raise are to blame for the sudden decline in the value of the rand. The country of South Africa may already be in a recession as a result of load shedding.
According to Michelle Wohlberg, fixed-income analyst at Rand Merchant Bank, “the rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake. The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”
Since South Africa imports the majority of its petroleum and major commodities like maize and wheat are priced using the import and export parity (in dollars), the rand’s weakness will currently contribute to the country’s high inflation rate.
The rand was trading at R19.71/$, R24.34 to the pound, and R21.16 to the euro on Friday morning.