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Rand rides the rate hike roller-coaster

January 30, 2014

The Reserve Bank raised its repo rate for the the first time in nearly six years. Nonetheless, the rand fell to a five-year low of R11.38 against the dollar. By 5pm yesterday, it was bid at R11.2348, down 17.49c from the same time on Tuesday. Altogether, the local currency slumped as much as 4.2 percent from the day's best level of R10.9050 to the session low, marking its most volatile session since November 2011 when it registered a 4.65 percent shift. "We would have expected the rand to appreciate against the dollar as a result of the hike. However, if you look at the other emerging market economies we now see a much, much bigger interest rate deferential," said Paul Chakaduka, a dealer at Global Trader. "Look at Turkey , where they increased interest rates by, call it 400 or 500 basis points, and we only increased it by 50 basis points. The market feels that this hike is not sufficient and is not on par with the rest of emerging markets." Forward-rate agreements due in 12 months jumped to more than 7 percent, which suggested rates could rise more than 200 basis points this year. Government bonds, particularly the shorter end of the curve, fell heavily. The Mercury

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Source: Mercury, The (South Africa)

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