South Africa’s rand steadied against the dollar on Thursday and was likely to trade within a narrow range ahead of a domestic interest rate decision later.
Both currency and debt markets have priced in the likelihood that South Africa’s Reserve Bank will leave its repo rate unchanged at 5,5% when it concludes its second monetary policy meeting (MPC) of the year at 1pm GMT.
Analysts see a possible increase at the end of the year as inflation rises.
6.30am GMT the rand traded at 6,9450 rands against the dollar, 0,14% firmer than Wednesday’s New York close at 6,9546 rands.
“I think it’s going to remain stable until the MPC meeting. A lot of where it goes later on will depend on the statement itself. If it’s a dovish statement then we might see the rand trade a bit weaker,” said Victor Mphaphuli, senior portfolio manager at Stanlib.
Should the central bank raise its inflation forecast significantly, the market will price in earlier rate increases this year, which would see bonds weaken further. The short end of the curve has steepened in the last few months on inflation worries.
On Thursday the yield on the benchmark 2015 note dipped 1,5 basis points to 7,815% while that on the longer-dated 2026 bond was down by the same margin at 8,94%.
The rand could also take its cue from global markets, with renewed worries about debt problems in the euro-zone weighing on risk appetite.
“The dollar is enjoying short-covering on renewed sovereign debt concerns in Portugal. Therefore, we see the bias in favour of a return to 7.00 rands,” Standard Bank said in a research note.
The JSE’s blue-chip June stock futures contract edged up 0,62% ahead of the 7am GMT start of trade on the Johannesburg bourse, which notched a second day of gains on Wednesday. — Reuters