Rand steady as investors await South Africa inflation data, rate decision

The South African rand held steady in early trade on Monday, September 21, as investors waited for August consumer inflation data and the central bank’s policy decision, both due on Wednesday.

At 0634 GMT, the rand traded at 16.2375 against the dollar, almost unchanged from its previous close. Traders are looking for fresh clues on the interest rate outlook in Africa’s most industrialised economy.

Inflation cools, but pressure remains

Headline inflation cooled to 4.3% year-on-year in July, the first fall in five months. That gave some relief, but the South African Reserve Bank is still widely expected to raise its main lending rate on Wednesday.

The expected hike follows a surprise move at the central bank’s previous meeting, when it left the rate unchanged. It argued then that policy was restrictive enough to return inflation to target within two years.

SARB under pressure to hike

Market analysts see rising odds of a hike. ETM Analytics said in a note: "Expectations are rising that the SARB will follow the Fed, ECB and BOJ in hiking rates. Not doing so could undermine the rand’s resilience and exaggerate the negative inflation impact that buoyant oil prices will have on inflation and broader monetary policy."

The US Federal Reserve, European Central Bank and Bank of Japan have all been part of the global rate conversation, and emerging market currencies like the rand are sensitive to shifts in global monetary policy.

Bonds steady

South Africa’s benchmark 2035 government bond was steady in early trade, with the yield at 8.685%.

The rand’s next move will depend on Wednesday’s inflation print and the SARB’s decision. A rate increase could support the currency, while a hold may test its recent resilience.