USD/ZAR: Rand is likely to increasingly struggle – Commerzbank

The South African central bank (SARB) raised its key rate by 50bp to 4.75% on Thursday. The rand was able to benefit from yesterday’s decision even though a larger rate step had been largely anticipated. However, economists at Commerzbank expect ZAR to struggle to post further gains.

SARB intensifies its approach

“The decision was not unanimous nor was it tight: only one of the five council members favoured a smaller rate step.”

“The hawkish statement is likely to have strengthened the market’s expectation that the SARB is very decisive in its fight against inflation despite weak growth.”

“In the current environment and with the prospect of a global rise in interest rates the rand is likely to increasingly struggle. We expect it to trend weaker medium-term, even though confidence of ZAR investors in the SARB’s stability-orientated approach is likely to remain an important support for the rand.”