Over the last week the market likely started pricing in that SA rates will increase.
JOHANNESBURG – This week, markets across the world were rattled by clear indications from the US central bank that it is going to hike rates, fast.
Minutes from the Fed’s latest monetary policy meeting, which were released this week, showed that officials were concerned about inflation and confident about the US economy’s ability to take interest rate hikes in its stride.
“It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the minutes read.
This sent a shockwave through global markets, with shares selling off as investors considered the negative impact of higher interest rates on consumer spending and company debt levels.
It was also supposed to hurt the rand: the dollar will earn higher interest rates, which means that the rand would look less attractive in comparison.
Instead, the rand rallied. After trading above R16/$ earlier this week, it was last at R15.58.
The rand strengthened against all expectations and is the strongest emerging market currency for 2022 so far, according to Wichard Cilliers, head of market risk and chief dealer at TreasuryONE.
You would expect a weaker rand ahead of aggressive interest hikes in the US, but the rand received support from other factors, says Citadel’s chief economist Maarten Ackerman.
Chief among them is the expectation that the SA Reserve Bank will also hike rates fast, which the markets have started pricing in.
Ackerman says the bank made it clear that if the US hike interest rates, it won’t just stay put.
“I think market participants started pricing in that our local rates will also increase, given the guidance that the SA Reserve Bank gave [at the last MPC meeting], now that the Fed is turning more aggressive.” The local bank’s next policy meeting starts on January 25.
Furthermore, recent strength in commodity prices also supported the rand, Ackerman says. South Africa is an exporter of commodities. . – FIN24.
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