JOHANNESBURG (Reuters) -The South African rand strengthened on Thursday, supported by bets that the central bank will hike interest rates early this year.
At 1615 GMT, the rand traded at 15.6875 against the dollar, roughly 1.4% firmer than its previous close and extending gains made a day earlier.
It bucked a trend for weakness in some other emerging market currencies, after U.S. Federal Reserve minutes led investors to price in a sooner-than-expected start to U.S. rate hikes.
Investec economist Annabel Bishop said in a research note that South Africa’s forward rate agreement curve was pricing in a 25-basis-point repo rate increase as soon as this month’s monetary policy meeting on Jan. 27, and potentially another 25-basis-point lift in the repo rate by March.
“The rand … has appreciated the potential for sharply rising interest rates in South Africa,” she wrote.
The Johannesburg Stock Exchange (JSE) slumped on Thursday in the biggest drop so far this year, in a move linked to the Fed minutes.
Rate hikes by the Fed typically drain capital from emerging markets (EM), increasing EM governments and companies’ borrowing costs and hurting their debt repayment abilities.
Investors world over turned jittery at the prospect of higher Fed rates, resulting in a sell-off across major stock markets including the JSE.
Its All-share index erased almost all of its gains since the start of the year with a drop of 1.19% to 74,165 points. The blue-chip index of top 40 companies sunk 1.39% to 67,420 points.
However, companies dependent on the South African economy such as banks, real estate and consumer goods firms stayed in positive territory.
Government bonds dipped, with the yield on the 2030 maturity adding 4.5 basis points to 9.43%.
(Reporting by Promit Mukherjee and Alexander Winning; Editing by Andrew Heavens)
