Rand rallies to best level in many weeks
On Friday, the rand broke through R14.60 level to reach its best since end-July.
It was last trading at R14.58 to the dollar, after reaching R15.47 as recently as mid-August. It is still some way off its best point (R13.26) this year, reached in February.
The currency received a boost from the decision by the European Central Bank to cut its interest rate for deposits by 10 basis points to minus 0.5% – and its vow to keep it there for as long as it takes. The central bank hope this will force banks to lend out money to boost the economy, as they won’t be earning any interest by not deploying their funds. The ECB will also start printing money again.
The euro “collapsed like a house of cards” following the rate decision with prices crashing towards 1.0930 against the dollar before later recovering towards 1.1000, says Lukman Otunuga, senior research analyst at FXTM. “Further weakness may be on the cards in the near term as investors digest the ECB’s action and prospects of further easing in the future.”
The rand was last trading at R16.15 to the euro. It was at R18.01 against the pound.
With the repo rate at 6.5%, the rand looks appealing in a world of negative interest rates.
On Thursday, Turkey, one of the other emerging markets with a sizeable interest rates, cut its key rate by 325 basis points to 16.5%. After inflation, its interest rate is at least a percentage point below lower than the repo in South Africa.
The local currency also received a boost from Moody’s assurance that there’s a “low likelihood” of a downgrade in South Africa’s credit rating.