South African rand weaker as central bank signals gradual approach

(Updates after rate decision)

JOHANNESBURG, Jan 27 (Reuters) - South Africa's rand weakened on Thursday as the central bank raised interest rates by the expected margin and suggested it would only increase rates gradually in the future.

By 1610 GMT, the rand ZAR=D3 traded at 15.3850 against the dollar, 0.3% weaker than its previous close.

The South African Reserve Bank called the decision to increase its repo rate ZAREPO=ECI by 25 basis points "measured". It said its monetary policy committee believed "a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored".

Governor Lesetja Kganyago told a news conference that a hike larger than 25 basis points was not discussed at this week's monetary policy committee meeting.

"The accompanying statement and comments from officials support our view that rates will not be raised as aggressively over 2022-23 as investors currently expect," Capital Economics said in a research note.

Also contributing to rand weakness, the dollar .DXY soared to its highest levels since July 2020, powered by bets the U.S. Federal Reserve could deliver faster and larger rate hikes in the months ahead.

Shares on the Johannesburg Stock Exchange, which had opened heavily weaker after the Fed overnight flagged rate hikes beginning in March, recovered most of the lost ground in afternoon trade after the South African central bank's comments.

Local economy-focused stocks such as banks, financials, retail and real estate did well.

The benchmark All-share index .JALSH closed down 0.4% to end at 73,504 points. The blue-chip index of top 40 companies .JTOPI was down 0.44% to 67,070 points at the end of the day's trade.

The banking index .JBANK was up 0.92% while the index of real estate investment trusts (REITs) .JREIT closed up 0.42%.

Petrochemicals major Sasol SOLJ.J continued to outperform the broader market by a wide margin with the stock up 3.7% driven by the oil price LCOc1 nearing $90 a barrel.

The government's benchmark 2030 bond ZAR2030= gained, with the yield falling 1.5 basis points on the day to 9.335%.
Reporting by Alexander Winning and Promit Mukherjee; Editing by Andrew Heavens

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.