South African rand stabilises after Monday’s mini-recovery

South African Rand coins are seen in this illustration picture taken October 28, 2020. REUTERS/Mike Hutchings/Illustration

JOHANNESBURG (Reuters) – The South African rand was broadly flat on Tuesday, a day after staging a mini-recovery on relief the country’s credit rating was not downgraded and bets on a large interest rate hike from the central bank this week.

At 1510 GMT, the rand traded at 19.2075 against the dollar, about 0.1% stronger than its previous close. On Monday the rand ended more than 1% stronger, after reaching an all-time low the week before.

Analysts polled by Reuters predict the South African Reserve Bank (SARB) will deliver a 25-basis-point (bp) rate hike on Thursday. But markets are pricing in a bigger increase.

“The rates markets are now pricing in a repo rate that may still rise by a further 150 bp between now and the end of the year,” ETM Analytics said in a research note.

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“Aggressive, maybe. But the (rand) has stabilised off the back of it, which perhaps gives one a sense of what is expected of the central bank to prevent an outright rout on the (rand).”

Sentiment towards South Africa has been badly affected by the worst rolling blackouts on record, which mean businesses and households are in the dark for up to 10 hours daily.

The rand hit a new record low against the dollar on Friday, but it got a reprieve when rating agency S&P Global held off from changing South Africa’s sovereign credit rating at the end of last week.

READ MORE: Rand falls to record low, recovers after authorities dent Russian arms shipment

Investors will assess the success of the SARB’s efforts to bring inflation under control when April consumer inflation figures are released on Wednesday.

Shares on the Johannesburg Stock Exchange closed lower, with the blue-chip Top-40 index down 1.77% and the broader All-share index down 1.56%.

South Africa’s benchmark 2030 government bond was little changed, with the yield down 0.5 basis points at 11.245%.

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