Rand rallies on news of rate cut

A rand note

A rand note (iStock)

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The rand climbed against every G10 currency on Thursday afternoon, despite the South African Reserve Bank cutting interest rates for the first time since March 2018.

“In an unanimous decision, the central bank cut interest rates by 25 bps to 6.5%. Although a reduction in rates has the potential to reduce the attractiveness of South African financial assets, it could support the economy,” said Lukman Otunuga, Research Analyst at broker FXTM, in a snap comment on Thursday afternoon.

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“Buying sentiment towards the rand has jumped this afternoon with the local currency gaining 0.5% against the Dollar. The USDZAR could challenge 13.84 if 13.90 proves to be an unreliable support.”

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Changes in the repo rate affect the prime lending rate, which is the lowest rate at which banks start lending to clients. With the repo rate down, the prime lending rate will decline to 10% from 10.25%.

At 16:49 on Thursday, the rand was trading at R13.8958/$, up 0.83%.

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