Money SA economy
The South African rand softened in afternoon trade on Thursday following a decision by the South African Reserve Bank's (SARB's) Monetary Policy Committee (MPC) to reduce the repo rate by 50 basis points to 6.5%.
Reserve Bank Governor Gill Marcus said that while an appreciated rand exchange rate is a positive factor in the inflation outlook, an excessively strong exchange rate is a cause for concern from the perspective of overall macroeconomic balance.
The rate cut decision was somewhat of a surprise as consensus expectation in the marketplace had been for an unchanged repo rate, with only two of the 11 economists polled by I-Net Bridge expecting a cut of 50 basis points.
At 3.45pm the rand was bid at R7.42 to the dollar, R9.92 to the euro and R11.08 to the pound. The euro was bid at $1.3344 from $1.3327 previously.
A local currency trader said: "The main driver for rand weakness is obviously the MPC decision to cut the repo rate. There were a lot of comments made by the governor about the strength of the rand."
He noted that just prior to the announcement, the rand had traded at about 7.37, with a high of 7.47 expected against the dollar.
Marcus said: "It is difficult to determine with precision an appropriate level of the exchange rate, but at recent levels the exchange rate may contribute to constraints in the recovery of export and import-competing sectors of the economy."
