South African Reserve Bank hikes interest rates

MARCH 17, 2016

South African Reserve Bank (Sarb) governor Lesetja Kganyago has announced an expected 25 basis-point hike in interest rates to 7% to help keep inflation in check.

This was after Sarb's monetary policy committee (MPC) decided to hike the repo rate by 50 basis points to 6.75% at its last meeting in January this year. This means the prime interest rate is now 10.5%.

The latest move was largely in line with expectations, with Nomura economist Peter Attard Montalto saying last week the MPC meeting would likely be a tug of war between a slightly more bullish (that is benign) inflation path and a stronger rand compared with the last meeting, versus a range of bearish other factors including wage round fears and expectations.

Kganyago stated that although the longer-term outlook has improved somewhat, inflation is still expected to remain outside Sarb's 3% to 6% target for an extended period.

The Sarb expects inflation to average 6.6% in 2016.

Referring to the rand, he said the local unit remains highly volatile and vulnerable to domestic and international factors, with domestic political developments and the risk of a downgrade also influencing the currency.

The rand, which was trading firmly at R15.40 to the greenback before Kganyago started his feedback from the MPC meeting, moved up to R15.42 in a narrow band. The rand was trading stronger at R15.29 at 15:30.

TreasuryOne said the ZAR and other emerging markets have been on the front foot on Thursday, after the US rate decision and comments made by Federal Reserve chairperson Janet Yellen.