South African rand extends rally on bets on higher rates and weaker dollar

As of 4:00 p.m. GMT, the rand was up 0.8% at 15.1100 to the dollar and up 1.7% this week. The dollar was down around 0.2% against a basket of currencies on Friday.

Rand Merchant Bank analysts said in a research note that the rand “could be vulnerable to a correction given its remarkable performance for the week and the year relative to other emerging markets.”

Expectations of a January 27 rate hike rose on Wednesday, when consumer inflation in December beat expectations at 5.9% year-on-year, near the top of the 3%-6% target range. of the South African Reserve Bank.

Economists polled by Reuters expect the repo rate to rise 25 basis points to 4.00% next week. It would be the second straight hike after the central bank raised rates in November.

Also supporting the rand, the World Bank approved a $750 million low-interest loan to help South Africa recover from the fallout from COVID-19.

“This loan will support the South African government’s efforts to accelerate its response to COVID-19 aimed at protecting the poor and vulnerable,” the World Bank and South Africa’s National Treasury said in a joint statement on Friday.

Shares in the local stock market fell on Friday, with both major Johannesburg Stock Exchange (JSE) indices shedding all of their gains for the week as weak earnings releases from the United States overshadowed a Chinese stimulus that inflated the market on Wednesday .

“There’s a lot of short-term noise around inflation, stimulus and earnings and it’s making the market frothy,” said David Shapiro, equity strategist at Sasfin Securities.

In the long term, however, governments cannot afford to derail the economy after two years of stimulus and that bodes well for the market, he said, but warned that 2022 would not be as bright as 2021.

The benchmark FTSE/JSE all-stock index fell 1.83% to end the week at 74,835 points and the blue-chip FTSE/JSE index of the top 40 companies slipped 2.01% to 68,186 points. .

The 2030 government bond was slightly firmer in early trades, with the yield falling 5.5 basis points to 9.245%.

(Reporting by Alexander Winning and Promit Mukherjee; Editing by Susan Fenton)

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