Johannesburg The rand weakened modestly yesterday, shrugging off news of a surge in the countrys reserves during November, as markets waited for the outcome of this weeks two-day monetary policy meeting.
Early in the session the rand briefly firmed on news that South Africas net reserves leaped by nearly 14 percent to $11.02 billion in November, confirming that the central bank had stepped up the pace of buying foreign exchange last month.
At 5pm it was bid at R5.7537 to the dollar, a fall of 3.5c on the day. It did not react to the dollars descent to a new record low of $1.3470 versus the euro yesterday.
The pace of dollar purchases «has picked up, but it has not influenced the market», a local trader said.
«It shows that the rand will continue to firm, tracking the euro. But it is likely to be quiet ahead of this weeks monetary policy meeting. I think it will stay in a range between R5.68 and R5.78 against the dollar.»
Few expect the central bank to trim its repo rate so near to the Christmas spending season, with consumer demand and credit extension already strong, and economic growth at 5.6 percent in the third quarter its strongest since early 1996.
But few are willing to entirely rule out another interest rate cut, as the rands gains of 11 percent against the dollar in the past two months and lower oil prices have improved an already benign inflation outlook.
«A rate cut of 50 basis points is still largely discounted by the market, but if you see a 1 percentage point reduction you could see reasonable rand weakness,» a local trader said.
A move that size would drive the rand to about R5.90 to the dollar within minutes, but even that would not signal any change in the units robust trend given the likelihood of further dollar weakness, he added.
A Reuters poll showed that 16 out of 19 analysts expected the central bank to keep its repo rate steady at 7.5 percent. The monetary policy meeting meets today and tomorrow.
Central bank governor Tito Mbowenis speech to diplomats last night may give some clues to the decision. The speech is due to be published on the central banks website.
Domestic bonds rallied. The yield on the R194 bond strengthened 7.5 basis points to 7.735 percent bid, while the yield on the benchmark R153 was bid 5.5 basis points stronger at 8.08 percent.
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