SA Rand on the back foot amid rate hike uncertainty

By: 
Reuters

Johannesburg - The rand fell against the dollar on Wednesday amid investor uncertainty over whether the South African Reserve Bank (Sarb) will raise interest rates this week.

Stocks opened 0.13% lower at 46 687 points on the Top 40 index.

At 09:30 the rand had slipped 0.19% to R14.3000/$, surrendering the gains of the previous session as the greenback climbed to a seven-month high.

US interest rates are expected rise before year-end. Government bonds were flat, with the yield on paper due in 2026 unchanged at 8.55%.

The market is divided over whether Sarb will leave benchmark rates unchanged at a policy meeting on Thursday. According to a Reuters poll, 21 of 35 economists predict rates will be held at 6.00% with the other 14 forecasting a hike.

The rand has been on the ropes for most of 2015, losing over 20% against the dollar, but hiking rates to underpin the currency risks slowing an already struggling economy.

"The problem with rand weakness is that it starts a vicious circle, where investors choose to withdraw rand bond and equity investments to avoid further currency loss, which in turns drives further rand weakness," said Investec economist Annabel Bishop.

Statistics South Africa is to publish inflation and retail sales data on Wednesday, with consumer prices expected to have ticked up, but only slightly. That would support the case for delaying any rate hike to 2016.

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