South Africans may have two reasons to be happy this week as the rand soars against the dollar and an interest rate cut looks imminent. Picture: Karen Sandison/Independent Newspapers
The rand has made some major gains against global currencies this week and continues to grow and South Africans await the interest rate decision on Thursday.
The ZAR has broken through the R17.60 mark against the dollar to reach its best levels since July 2023. To place this into context, the rand was trading at around R19.30 in February 2024.
The rand was trading at around R17.57 to the dollar at 9.30am on Wednesday.
Against the euro, the rand was trading at around R19.55 and R23.19 to the pound.
Kavir Surujhlal, a sales trader at IG Group told Reuters on Tuesday that the main reason for the rand’s strength has been a weak dollar.
“A weaker greenback is primarily driving the renewed strength in the rand today,” Surujhlal noted.
Casparus Treurnicht, a portfolio manager and research analyst at Gryphon Asset Management told Reuters that the rand is also doing well due to the positive sentiment around the government of national unity (GNU).
He also acknowledged that the rand has been buoyed by the possibility of a US interest rate cut by the Federal Reserve.
Treurnicht added the South African Reserve Bank (SARB) will also start cutting interest rates.
The SARB is expected to make its decision on an interest rate cut this Thursday. The repo rate is currently at a 14-year high of 8.25%, while the prime lending rate is 11.75%.
“I think the South African Reserve Bank will also start cutting interest rates, and perhaps this tide has moved a bit too quickly. To sustain this, there needs to be better growth from South Africa and quite a few other fundamentals need to improve. For now, it is still just driven by sentiment,” Treurnicht added.
Old Mutual’s group chief economist Johann Els, said expectations are mounting for an interest rate cut.
Els said inflation has eased considerably, with the headline rate dropping to 4.6% in July from 5.1% in June, comfortably within the SARB's target range.
Els argued that the SARB would have room to cut rates at both of its remaining meetings for 2024, on September 19 and in November.
“I expect interest rates to be cut, perhaps more than expected by the market,” he emphasised.
The economist said the Reserve Bank has successfully brought inflation within its target range, and with global pressures, particularly from the US, starting to ease, the path for a rate cut seems clear.
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