Rand Strengthens after SARB Leaves Borrowing Costs Unchanged

  • Market Overview

The rand strengthened somewhat against the US dollar on Thursday supported by retailers, while the FTSE/JSE All Share Index fell after the South African Reserve Bank’s Monetary Policy Committee maintained interest rates at their highest level since 2009. The local bourse lost 0.38% after the bank cautioned about the continued upside risks to the inflation outlook, particularly around food inflation, power as well as logistics and infrastructure challenges.

While the bank's decision to keep the repo rate unchanged at 8.25% was unanimous and on par with expectations, news that the US economy expanded by 3.30% (above expectations of 2.20%) in the fourth quarter of 2023 surprised markets and contributed to the growing perception that the Federal Reserve will not lower rates anytime soon. This reduces the likelihood of cheaper borrowing costs locally. The S&P 500 added 0.53%, maintaining a record high for the fifth consecutive day, while the Dow Jones Industrial Average and the Nasdaq gained 0.10% and 0.18% respectively.

The European Central Bank ( ECB ) also maintained the current level of borrowing costs on Thursday. The risks to economic growth are still "tilted to the downside," according to ECB President Christine Lagarde, who also stated that it was "premature to discuss rate cuts" for the Eurozone economy. The pan-European STOXX 600 Index added 0.30%, while the DAX and CAC 40 each added 0.10%.

As fresh stimulus in China bolstered market optimism, mainland stocks rose for the third straight session on Thursday, with the Shanghai Composite jumping 3.03%. In an attempt to strengthen the economy, the People's Bank of China announced late on Wednesday that it will lower banks' reserve ratios by 50 basis points starting next month. The economy is expected to receive a capital boost of about 1 trillion yuan as a result. China's cabinet also undertook to calm capital markets earlier this week, reportedly looking to allocate approximately 2 trillion yuan as part of a fund to purchase mainland shares.

Gold was little changed at $2 014.11/oz at the close of business. Brent crude was nearly 2% firmer at $81.60 a barrel at 20h00 “after data showed US crude stockpiles fell more than expected last week, while the Chinese central bank’s cut in banks’ reserve ratio reinforced the hope of more stimulus measures and economic recovery,” Business Day reported.

PSG Wealth Daily Investment Update, 26 January 2024

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