JOHANNESBURG (Reuters) – The South African rand made a strong recovery on Friday from a record low struck overnight after a central bank interest rate hike failed to impress some traders and economists.
At 1527 GMT, the rand traded at 19.6300 against the dollar, around 1% stronger than its previous closing level.
It is now near the level it was before the South African Reserve Bank (SARB) announced a 50-basis-point interest rate hike on Thursday.
On Thursday the rand closed down more than 2.7% against the dollar, as some traders had bet on a 75-bp rate hike.
“(Yesterday’s) move may have been overdone,” Greg Davies, head of wealth at asset manager Cratos Capital, told Reuters.
“It seems the market is settling down away from the panicked move we had yesterday to more realistic levels.”
Another factor cited behind the rand’s surprise slump on Thursday was comments in the monetary policy statement that the SARB expected further currency weakness ahead.
“Foreigners have been net sellers of (South African) bonds and equities over the last few months and still with an already weak rand there was no incentive for them to get back into South African financial markets,” said Casparus Treurnicht, analyst and portfolio manager at Gryphon Asset Management.
The central bank has raised interest rates 10 consecutive times since November 2021. The latest hike its interest rate to a 14-year high, an effort to bring inflation back within its 3%-6% target band from 6.8% in April.
The rand struck a new all-time low of 19.8175 in the early hours of Friday. It is down about 1.6% against the dollar since the end of last week.
Shares on the Johannesburg Stock Exchange closed stronger. The blue-chip Top-40 index ended the day 0.61% higher than its previous close while the broader all-share index closed up about 0.54%.
South Africa’s benchmark 2030 government bond was stronger, with the yield down 5 bps at 11.115%.