South African rand weakens ahead of central bank rate decision
- 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
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%.