Reuters

Rate hike lifts S. Africa’s rand; CEE FX weaker as ECB verdict buoys euro

Jul 21, 2022 at 2:52 pm GMT


* Turkish cenbank holds rate at 14% despite near 80% inflation

* Rouble sinks ahead of expected rate cut

* South Africa raises main lending rate more than forecast

By Anisha Sircar

July 21 (Reuters) – South Africa’s rand jumped against the dollar on Thursday after a larger-than-expected rate hike by the central bank, while central and eastern European currencies were hit by a stronger euro following the European Central Bank’s first rate rise in over a decade.

The South African Reserve Bank (SARB) raised its main lending rate ZAREPO=ECI by 75 basis points (bps) to 5.50%, compared to predictions of a 50 bps hike, in the bank’s fifth consecutive increase as it tries to keep a lid on inflation.

The languishing rand ZAR= jumped 0.7%, reversing losses of 0.5% from earlier in the day.

“We will likely see the terminal repo rate level get to 6.5%, so there will be quite a bit more tightening in the cycle to come – inflation expectations have started drifting higher, which is what the SARB is concerned about,” said Miyelani Maluleke, macroeconomist at Absa Corporate and Investment Banking.

The yield on the government’s benchmark 2030 bond ZAR2030= rose as much as 1.1 bps following the decision.

Turkey’s lira TRY= continued to hover near December lows, last trading at 17.69 to the dollar, after its central bank stood pat on policy for a seventh straight month.

“Investors’ main hope for a policymaking shift lies in elections due mid-2023,” said Jason Tuvey, senior emerging markets economist at Capital Economics.

“Turkey’s external position remains dire. A wide current account deficit, large short-term external debts and perilously low foreign exchange reserves leave the lira vulnerable.”

The euro rose as much as 0.8% after the ECB delivered a 50 bps rate hike, its first increase since 2011 as it joined global peers in bumping up borrowing costs. Hungary’s forint EURHUF= and the Czech crown EURCZK= were up to 0.2% weaker.

Meanwhile, the Russian rouble RUBUTSTN=MCX fell sharply against the dollar, slipping below 58 ahead of an expected rate cut by its central bank on Friday.

Aggressive monetary tightening and fears of a recession have sent investors scurrying to safer assets such as the dollar, piling further pressure on emerging assets.

Latin American currencies have also weakened this month, with Colombia’s peso COP= leading the way with a decline of 6% so far in July as prices of its top export, crude oil, come under pressure from worries of weaker energy demand and tighter supply resulting from Russia’s war on Ukraine.

Elsewhere in the region, Brazil’s federal tax revenue in June rose 17.96% year-on-year to a record level, official figures showed, boosted by increases in corporate income taxes and oil royalties.

Key Latin American stock indexes and currencies at 1440 GMT:

Stock indexes

Latest

Daily % change MSCI Emerging Markets

988.36

0.18 .MSCIEF

MSCI LatAm

1941.62

-1.86 .MILA00000PUS

Brazil Bovespa

97478.05

-0.82 .BVSP

Mexico IPC

46864.54

-0.57 .MXX

Chile IPSA

5149.10

0.06 .SPIPSA

Argentina MerVal

106611.25

-0.316 .MERV

Colombia COLCAP

1300.05

-0.23 .COLCAP

Currencies

Latest

Daily % change Brazil real

5.4883

-0.53 BRBY

Mexico peso

20.6358

-0.50 MXN=D2

Chile peso

930.7

-0.52 CLP=CL

Colombia peso COP=

4374.25

-0.69

Peru sol

3.887

-0.25 PEN=PE

Argentina peso

129.5900

-0.15 (interbank) ARS=RASL

Argentina peso

319

-0.63 (parallel) ARSB=



Reporting by Anisha Sircar in Bengaluru
Editing by Mark Potter