Repo left unchanged but rand sinks

The rand was a touch softer against the dollar on Thursday, coming off the session’s highs after the central bank left rates unchanged despite a hawkish policy statement that had fuelled last minute expectations for a hike.

Governor Lesetja Kganyago said the bank’s monetary policy committee voted 4:2 in favour of keeping the benchmark repo at 5.75% but warned the deteriorating inflation outlook meant the stance could not be “maintained indefinitely”.

The rand touched a session high of 11.7350/dollar after Kganyago warned that inflation expectations remained uncomfortably close to the upper end of the 3-6% target range over the longer term.

It had retreated to 11.8400 by 1531 GMT, little changed from Wednesday’s closing level of 11.8355.

“The sell-off in the rand post the MPC meeting … tells us that the market wants the Reserve Bank to start hiking interest rates,” said Jana van Deventer, a market analyst at ETM.

“There’s no doubt that the statement was hawkish, and that could provide support for the rand at the margins in coming months if they actually start hiking interest rates but it might be too little too late.”

Government bonds were weaker after the rate call, with the yield on the benchmark government bond maturing in 2026 ending the session at 7.985%, up 2.5 basis points from the previous day.