Rand softer after interest rate hike of 0.25%

THE rand softened against the dollar after the Reserve Bank’s monetary policy committee (MPC) raised the repo rate by 25 basis points to 6.25% on Thursday, citing concerns over a weak rand and rising inflation.

It was widely expected that the MPC would keep rates on hold as weak oil prices and a struggling local economy continued to put a damper on inflation.

At 3.41pm the rand was at R14.1903 to the dollar from a previous close of R14.1673.

Against the euro it was at R15.1553 from R15.0999 previously and at R21.6606 against the pound from R21.5812.

The euro was at $1.0680 from a close of $1.0659.

The 25-basis-point increase in the repo rate announced by the Reserve Bank could push food inflation as high as 10% with “catastrophic results” for deeply indebted South Africans, said Neil Roets, CEO of South African debt management company Debt Rescue.

Mr Roets said the combination of the severe drought in prime food-producing areas coupled with the increase in the interest rate and the rapidly weakening of the rand is going to have dire consequences for poor people.

Although a quarter of a percentage point increase in the interest rate banks pay to the Reserve Bank to borrow money did not sound like much, it came following a slew of other price increases, notably food and imported commodities that had been negatively influenced by the drop in the value of the rand against all major currencies, he said.

The rand was firmer earlier in the day after the dollar weakened following further signs that the US Federal Reserve could be on track to raise interest rates in December, but that the pace of future increases would be gradual.

The October Fed open market committee minutes indicated that most members were open to raising interest rates at the meeting in December.

They wanted to indicate that while no decision had been made, it might become appropriate to initiate the “normalisation process” at the next meeting, a Barclays Research analysts said in a note. Rates have been kept near zero for seven years.

Source: http://www.bdlive.co.za/Feeds/BusinessDay/2015/11/19/rand-softer-after-i…

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