The rand strengthened sharply after Reserve Bank Governor Lesetja Kganyago announced a 25 basis point hike in the country’s interest rates. Photo: Oupa Mokoena/African News Agency (ANA)

CAPE TOWN – The rand strengthened sharply on Thursday after Governor of the South African Reserve Bank Lesetja Kganyago announced a 25 basis point hike in the country’s interest rates.

The domestic currency, which had been trading positively for the better part of the day ahead of Kganyago’s announcement spiked to R13.73c against the dollar, which has displayed some weakness of late along with the sterling, which has been pounded by Brexit fears. 

Corporate treasury manager at Peregrine Treasury Solutions, Bianca Botes, said the 25 basis point interest rate hike was in line with expectations giving the rand the momentum to trade more than  1 percent stronger than its opening on Thursday morning.

“The market also responded well to the announcement that President Cyril Ramaphosa would be announcing a cabinet reshuffle on Thursday afternoon. We have become accustomed to a reshuffle being perceived as negative, that this is quite a refreshing change.

“Some of the elements leading to the change in perception of this event is firstly the upfront announcement of the reshuffle versus the historic blindside, as well as the fact that valid reasons such as the death of the Minister of Environmental Affairs and the exit of tarnished Minister of Home Affairs, can be given for the reshuffle, that do not include devious political agendas,” said Botes.

Meanwhile, the property sector expressed displeasure at the interest rate hike with industry players saying the decision by the Reserve Bank’s Monetary Policy Committee to raise the repo rate “has sent ripples across the economic spectrum”. 

Chief executive of Greeff Christies International Real Estate, Mike Greeff, said: “The hike has come contrary to predictions that rates would remain unchanged for the rest of the year. The increase is expected to have quite a far-reaching effect on all facets of the economy.”

Greeff said the real estate sector was definitely not immune to these effects and would probably be felt the most by the lower and middle sectors. Lending institutions will in all likelihood implement more stringent lending measures which would most likely have a dampening effect on new bond applications from first-time buyers.