JOHANNESBURG. — South Africa’s rand is the best-performing currency in emerging markets since Janet Yellen last week signalled that the Federal Reserve won’t rush to tighten monetary policy.
The rand has netted an almost 5 percent return in the period for carry traders, who borrow where rates are low to invest in high-yielding assets. HSBC Holdings Plc predicts that the rand will outperform its peers and didn’t see the South African Reserve Bank reducing its key rate from 7 percent yesterday.
However, on Wednesday, the rand retreated despite better than anticipated inflation and retail figures, as some investors booked recent profits ahead of the interest rate decision. By 1600 GMT the rand had weakened 0,29 percent to 12,9300 per dollar, down from a close of 12,8925 previously and after gaining in five straight previous sessions.
Local data showed consumer inflation at its lowest in 19 months and well below the Reserve Bank’s upper target of 6 percent, prompting some investors to price-in a higher probability of a rate cut. The bank has hiked rates by 200 basis points since 2014 but over the last 12 months has kept them on hold at 7 percent, saying its tightening cycle had come end.
Analyst at Credit Suisse Carlos Teixeira said falling inflation and the resilient currency justified a rate cut.
“There is sufficient cushion in the forecast profile for inflation to withstand some renewed currency weakness, which would not be triggered by a cut of 50 basis points,” Teixeira said. — Bloomberg/Reuters.