South African rand weakens ahead of central bank rate decision

JOHANNESBURG: The South African rand weakened in early trade on Thursday, ahead of a much-anticipated interest rate decision by the South African ​Reserve Bank (SARB) later in the day.

At 0533 GMT, the rand ‌traded at 16.45 against the dollar , about 0.5% down from its previous close.

Fifteen of the 22 economists polled by Reuters expect the South African Reserve Bank to raise ​its benchmark lending rate by 25 basis points to 7.00% ​from 6.75%, while the remainder expect the bank to leave ⁠the rate unchanged.

At the bank’s last meeting, it kept rates unchanged, saying caution ​was needed as higher energy prices linked to the U.S.-Israel war against ​Iran would push up inflation.

South Africa’s annual inflation quickened to 4.0% year on year in April, driven mainly by sharp fuel price rises linked to the U.S.-Israel war against ​Iran.

Investec economist Lara Hodes said in a note that upside risks to ​inflation have increased as a result of the war in the Middle East and ‌therefore ⁠the SARB is likely to hike rates by 25 bp, “acting pre-emptively to prevent any second-round effects from becoming embedded in inflation”.

Statistics South Africa will publish producer inflation numbers at 0930 GMT, which could offer clues on ​the health of Africa’s ​most industrialized ⁠economy.

Economists at Nedbank said they expect producer inflation to increase from 2.3% in March to 3.5% in April, primarily ​driven by a sharp rise in fuel costs.

“This reflects ​the ⁠impact of higher oil prices following the closure of the Strait of Hormuz, alongside a weaker rand amid sustained geopolitical tensions in Iran, which have ⁠heightened risk ​aversion toward emerging markets,” the bank’s economists ​said.

South Africa’s benchmark 2035 government bond was slightly firm in early deals, as the yield ​fell 6 basis points to 8.48%.