Rand pushes past R14.50/$ as Reserve Bank signals future cut

The rand weakened past the psychologically important R14.50/$ level on Thursday afternoon, falling slightly after the Reserve Bank indicated it may cut interest rates by the end of the first quarter of 2020.

Reserve Bank governor Lesetja Kganyago said on Thursday although risks to SA's growth remained to the downside, the Bank's implied policy path indicated the cut. In the March meeting, the Bank had indicated that a 25 basis-point increase by the end of 2019 was on the cards.

The rand pushed to R14.5187/$ following Kganyago's comments, but by 3.30pm it was 0.83% weaker at R14.4951/$. The currency was 0.5% weaker at R16.1101/€ and 0.56% down at R18.3039/£.

Three members opted to keep the repo rate unchanged at 6.75%, Kganyago said on Thursday, while two sought a 25 basis point cut for May.

“The rand has benefited from improved sentiment towards riskier assets but will continue to be affected by idiosyncratic factors, such as domestic growth prospects and policy settings,” Kganyago said.

SA's faltering economic growth and relatively contained inflation has raised hopes of an economic boost through looser monetary policy, with data on Wednesday showing that consumer inflation accelerated 4.4% in April, less than the 4.5% expected by economists.

However, Kganyago said on Thursday that the Bank's inflation stance was forward looking.

Global monetary policy remains accommodative, and significant downside risk to SA's inflation outlook would be likely to be required if SA does not receive an interest-rate cut in coming months, FNB chief economist Mamello Matikinca-Ngwenya said.

“We remain concerned about the persistently weak domestic growth outlook and are of the view that the expected underperformance in GDP in the first quarter will require a notable rebound in the coming quarters for growth to be stronger than the 0.8% recorded last year,” Matikinca-Ngwenya said.

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