According to a senior derivatives dealer from Cortex Securities, Martin Lentsoane, the rand has disappointed of late, but it is “not bad” if the rand stays around current levels rather than heading to R8 to the dollar.
“These are stronger levels for exporters. I have also heard views that at around the R7,50 mark exporters and importers are able to benefit,” he said. “But when the rand heads towards R8 to the dollar, you have further imported inflation problems.”
These views come just a day before the South African Reserve Bank’s (SARB’s) monetary policy committee (MPC) meeting on interest rates, with the rand’s performance and effect on inflation a likely topic of discussion.
After starting August on the front foot at a close of R7,2137 to the dollar, the rand was on Monday night languishing at the R7,80 mark. It was only marginally better on Tuesday morning at R7,7625 a dollar, but was trying to bounce off the weaker levels.
A pause in interest rates would not be rand positive as it would diminish the carry trade advantage being built up. However, South Africa’s interest rates still remain high enough on a comparative basis to gain foreign investors’ attention.
The bond market has been receiving renewed foreign appetite as they look for value at higher yields, and this foreign appetite for bonds also filters through to aid the rand market.
The consensus is for South Africa’s repo rate to remain unchanged at 12% in August, according to a survey of 13 leading economists by I-Net Bridge.
The MPC begins its two days of deliberations on Wednesday, with the final decision due just after 3pm on Thursday.
Of the 13 respondents surveyed, 10 felt the repo rate would remain unchanged, with three predicting a 50-basis-point increase.
Most respondents also felt the tightening cycle would be over, but that if another increase happened, then August’s increase would mark the end of the cycle.
The MPC increased the repo rate by 50 basis points to 12% in June — against a consensus expectation that the increase would measure 100 basis points following particularly hawkish comments from the central bank governor on May 28. — I-Net Bridge