From Business Report
October 12 2007
Johannesburg - The rand surged ahead to a 16-month best yesterday after the Reserve Bank raised interest rates, catching investors long on dollars, dealers said.
Rand strength was bolstered by a weak dollar, which in turn lifted gold to a fresh 27-year high, while platinum exceeded its best level set last November.
Reserve Bank governor Tito Mboweni raised the key repo rate by 50 basis points to 10.5 percent in a bid to curb inflation, increasing the rand's yield appeal. The market had been banking on no change.
The local currency was bid at R6.729 against the greenback at 5pm, a gain of 12.4c on the day and just off the session high of R6.715 - its strongest level since June 13 last year, according to Reuters data.
The rand was the best performer against the 16 most actively traded currencies tracked by Bloomberg.
"The market expected no rate hike and he [Mboweni] hiked it," said Bidvest trader Ion de Vleeschauwer. "Everybody was caught long on dollars", which led to a selloff.
A weaker greenback added to the move, he added. "So massive dollar weakness and the central bank chose to hike rates … It is a no-brainer; everybody wants to buy rand."
Commerzbank currency strategist Carsten Fritsch said: "We see some stronger potential in the rand as we expect the dollar to remain under pressure and gold prices to rise."
Precious metal prices benefited as the euro surged above $1.42, rising towards its October 1 record high of $1.4283.
AFP reported that platinum rocketed as high as $1 408.50 an ounce in London, beating its previous best of $1 402.50, while gold leapt as high as $752.04 in late London trade. The moves supported the rand as South Africa is the top producer of the metals.
Government bond yields raced higher after the rate rise, but soon retraced back to near Wednesday's closing levels. The yield on the benchmark R157 bond closed 1 basis point stronger at 8.18 percent, while the R153's yield ended 3 basis points weaker at 8.87 percent.