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Author Topic: Money Markets Signal Surprise S. Africa Rate Hike as Rand Falls  (Read 245 times)

ForexMan

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South Africa’s battered rand may receive an unexpected boost from the central bank this week, if money-market rates are anything to go by.

While only three out of 19 economists in a Bloomberg survey are predicting a South African Reserve Bank rate increase on Thursday, traders have been adding bets on a surprise hike. Forward-rate agreements are now putting the odds of a 25 basis-point hike at more than 50 percent, up from just 12 percent a month ago.



South Africa’s battered rand may receive an unexpected boost from the central bank this week, if money-market rates are anything to go by.

While only three out of 19 economists in a Bloomberg survey are predicting a South African Reserve Bank rate increase on Thursday, traders have been adding bets on a surprise hike. Forward-rate agreements are now putting the odds of a 25 basis-point hike at more than 50 percent, up from just 12 percent a month ago.

The rand slumped 1.1 percent on Friday, a day after Russia’s central bank tightened policy to help support an ailing ruble. Earlier in the week, Turkey’s central bank had done the same. South Africa’s currency extended losses on Monday, with some investors expressing concern that even a hawkish hold on Thursday would leave the country vulnerable at a time when other markets are tightening.

While the Reserve Bank doesn’t target a level for the rand, the currency’s decline since August may feed through to inflation and force the central bank’s hand, according to Investec Bank Ltd., which brought forward its prediction for a rate increase to this week. The rand has weakened almost 10 percent since the previous Monetary Policy Committee meeting in July.

“Some second-round effects have emerged in the latest CPI inflation data, and more are likely as the rand has weakened for a sustained period, with the depreciation yet to end,” Annabel Bishop, the Johannesburg-based chief economist at Investec, said in a client note Monday. South Africa’s consumer inflation rate probably climbed to 5.2 percent in August, from 5.1 percent, data may show Wednesday, according to the median estimate in a Bloomberg survey. The central bank’s target range is 3 percent to 6 percent.

One thing that may make the central bank pause is the sluggish economy, though “in the recent past the SARB has reiterated that it targets inflation, not growth, and has hiked in the face of weak economic performance,” Bishop said. South Africa’s economy contracted in the second quarter as the country entered its first recession since 2009.

.:https://www.bloomberg.com/news/articles/2018-09-17/money-markets-signal-surprise-s-africa-rate-hike-as-rand-falls
« Last Edit: September 20, 2018, 05:47:41 PM by ForexMan »



 

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