Global Courant
South Africa’s rand has softened in recent sessions as investors avoid risk.
Rand Merchant Bank said rand’s renewed weakness over the past week was caused by generalized weakness in emerging markets rather than South Africa-specific or broad dollar moves, Reuters reported.
On Tuesday (July 4), the rand traded at R18.77 against the dollar, a generally weaker position than the R18.20 levels seen at the end of June.
Annabel Bishop, Investec’s chief economist, said recent aggressive comments by the European Central Bank (ECB) about further rate hikes have led to a weaker emerging market currency and a stronger US dollar.
Christine Lagarde, the president of the ECB, said the bank does not see enough tangible evidence that underlying inflation, particularly in domestic prices, is stabilizing and declining.
This comes after Bank of England Governor Andrew Bailey expressed concern over inflation, particularly core inflation, with tight labor markets and higher wages supporting inflationary pressures.
Jerome Powell, the head of the US Federal Reserve Bank, echoed these sentiments, noting that while monetary policy is restrictive, it may not be restrictive enough and it hasn’t been restrictive long enough.
“Markets are increasingly discounting the expectation of further interest rate cuts in the remainder of this year, and are instead looking at additional rate hikes as central banks focus on bringing inflation back to target,” Bishop said.
“The recalibration of market perceptions has led to some subsidence of a modest build-up of risk-taking (risk-on) and a return to a more risk-averse environment in global financial markets, resulting in peripheral weakness and that of other emerging market currencies. .”
Ultimately, global markets see inflation as sticky and persistent, pushing foreign investors away from emerging markets like South Africa.
South African Reserve Bank (SARB) Governor Lesetja Kganyago also weighed in on the sentiment, saying last week that there is no doubt that local monetary policy will remain tighter for longer than the market initially priced in.
So far, the SARB has hiked rates in 10 consecutive meetings, increasing the cycle by 475 basis points from November 2021 as the battle against inflation continues.
The Bureau of Economic Research (BER) said that despite the Fed holding interest rates in the United States, a 25 basis point hike is expected for the US later this month, indicating that the battle against high levels of inflation is still on the way. corridor is the globe.
Some economists have noticed the SARB’s aggressive tone, saying the central bank will likely hold out rate hikes for at least one more meeting — probably another 25 basis point hike in July.
The rand is currently traded at:
R18.77/$ R20.46/€ R23.82/£
Read: Another blow to business in South Africa
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