Rand weakens slightly as ECB keeps interest rates steady

The rand was weaker on Thursday afternoon, softening a little after the European Central Bank (ECB) left interest rates unchanged.

Of 67 economists polled by Bloomberg, five had expected the Bank to lower its deposit rate by 10 basis points.

The ECB did hint that rate cuts were coming, altering its language to say that it intended to leave rates unchanged at “present or lower levels” at least through the first half of 2020, having previously just said “present levels”.

At 2pm the rand had lost 0.5% to R13.9507/$, 0.2% to R15.4968/€ and 0.43% to R17.4098/£. The euro was 0.2% weaker at $1.1116.

Earlier, Moody’s Investors Service confirmed that the government’s announcement of additional funding for Eskom on Tuesday was “credit negative”, with the agency saying the state would struggle to absorb these costs.

The rand’s reaction was mild, however, and analysts said focus was currently on global factors, with the rand’s reaction to local news having been muted this week.

Moody’s was likely to change SA’s outlook to negative from stable, but unlikely to downgrade SA to junk status in 2019, said BNP Paribas SA senior economist Jeff Schultz.

Market concern about SA’s growth outlook, as well as Eskom and government debt, was, however, being reflected in longer-dated bonds, Schultz said.

The spread between SA’s benchmark 10-year bond, due in 2026, and the 36-year bond, due in 2048, has widened, and was at 160 basis points on Thursday. At the beginning of 2019, the spread was 108 basis points.

BusinessLIVE