Improved investor sentiment spurs the stocks and currency markets ahead of repo rate decision

The rand strengthened by 0.7 percent to R15.15 against the US dollar by 3pm yesterday, its highest level in five days, on expectations that the SA Reserve Bank (SARB) will lift its repo rate to 4 percent at its first monetary policy decision of the year today. By 5pm the rand was bid at 15.19 to the dollar. Photographer: Nadine Hutton/Bloomberg

The rand strengthened by 0.7 percent to R15.15 against the US dollar by 3pm yesterday, its highest level in five days, on expectations that the SA Reserve Bank (SARB) will lift its repo rate to 4 percent at its first monetary policy decision of the year today. By 5pm the rand was bid at 15.19 to the dollar. Photographer: Nadine Hutton/Bloomberg

Published Jan 27, 2022

Share

THE STOCKS and currency markets firmed yesterday on improved investor sentiment ahead of the crucial interest rates decision, but the global oil prices could put a damper on momentum.

The rand strengthened by 0.7 percent to R15.15 against the US dollar by 3pm yesterday, its highest level in five days, on expectations that the SA Reserve Bank (SARB) will lift its repo rate to 4 percent at its first monetary policy decision of the year today. By 5pm the rand was bid at 15.19 to the dollar.

The domestic currency also lifted as investors waited in anticipation of the Federal Open Market Committee outcome in which the Federal Reserve was expected to maintain a hawkish tone and confirm that interest rates in the US will start to rise in March.

FXTM’s senior research analyst Lukman Otunuga said the rand appreciated against most G10 currencies yesterday ahead of the Federal Reserve’s monetary policy decision.

“Although US interest rates are widely expected to remain unchanged this month, the meeting will be closely scrutinised for fresh insight into the Fed’s aggressive monetary policy path for 2022,” Otunuga said.

“Looking at the rand, it has appreciated against every single G10 currency in the year to date.

“The local currency may be injected with fresh volatility from this evening onwards due to the upcoming central bank meetings.”

The SARB is expected to hike interest rates by 25 basis points in this meeting, and add three or more hikes in 2022 to reach a policy rate of 4.75 percent or above by year end.

The bank began tightening its monetary policy in November as upside risks materialised on inflation mainly driven by rising prices of administered prices, especially fuel and electricity.

The price of Brent crude oil rose to a seven-year high of $89.52 (R1 367.64) per barrel yesterday as geopolitical risks fuelled supply constraints again.

“Higher oil, electricity and food prices continue to put pressure on consumer inflation,” the Bank of America Global Research report noted yesterday.

Headline inflation has quickened to 5.9 percent in December 2021, closer to the top range of the SARB’s 3 to 6 percent target range.

BNP Paribas South Africa senior economist Jeff Schultz said they expected a 4:1 or an unanimous decision in favour of the rates rise following the 3:2 split among the five-person committee in favour of raising rates by 25 basis points in November.

“In particular, we expect the SARB to revise up its assumptions on rents, electricity, fuel and food prices,” Schultz said.

“We expect the bank to warn the markets that food inflation could prove stickier than previously forecast given recent flooding in parts of the country which has damaged up to 25 percent of some crop yields.”

Meanwhile, the JSE All Share Index rose more than 2 percent to 73 803 index points by 4pm yesterday, extending gains for a second consecutive session, led by miners and recovery in tech stocks.

By 4pm MTN rose by 5.9 percent to R169.92 per share while Sibanye and Sasol both gained 5.5 percent and 5.3 percent to R59.02 and R320.25 per share, respectively.

[email protected]

BUSINESS REPORT ONLINE