South African rand firms ahead of cenbank move; stocks slide

A collection of mixed denomination South African rand coins sits on an arranged photograph in Johannesburg, South Africa, Thursday, June 22, 2017. South Africa’s inflation rate rose for the first time this year in May after food price growth accelerated from the slowest had pace since December 2015. Photographer: Waldo Swiegers/Bloomberg via Getty Images

September 22 (Reuters) – The South African rand rose on Thursday ahead of a major rate hike expected by the country’s central bank, while emerging-market equities hit near a 28-month low after the Federal Reserve’s aggressive view of US interest rates.

The ZAR= rand rose 0.4% to 17.6 against the dollar, with investors eyeing a likely 75 basis point hike by the South African central bank to bring inflation back within its 3%-6% target range. Read the full story

Data on Wednesday showed August inflation slipped to 7.6%y/y from 7.8% in July, still well above target although it suggests inflation may have peaked. Read the full story

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Meanwhile, the Fed hiked interest rates by 75 basis points for a third time on Wednesday, forecast to raise rates further and faster than investors had expected. Read the full story

“The message was more hawkish than expected, so the market is absorbing the information and you can see volatile sessions through the end of the week,” said Cristian Maggio, head of portfolio and ESG strategy at TD Securities.

The dollar surged to a fresh two-decade high and Asian equities hit a two-year low, while EM stocks .MSCIEF fell 1% to their lowest since May 2020.

Stocks are down more than 25% so far this year and are facing their worst year since the 2008 financial crisis as markets digest the deteriorating global growth outlook on rising inflation, aggressive tightening cycles and geopolitical risks.

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Turkey’s central bank’s decision is also due later in the meeting, with analysts expecting the bank to keep rates on hold at 13% after surprising with a rate cut last month. Read the full story

“If you exclude Turkey, the journey is towards higher rates…Turkey is facing cuts, which will be a senseless decision. It would be even harder to understand such a decision today as inflation has passed 80 percent,” Maggio added.

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The lira TRY= slipped 0.2%.

Brazil’s central bank left interest rates unchanged on Wednesday, as expected, after 12 straight rate hikes, while the Philippine central bank hiked rates by half a percentage point, also in line with expectations. Read full articleRead full article

Indonesia surprised interest rates by 50 basis points in a bid to control inflation after the government hiked fuel prices earlier this month. Read the full story

The rupiah IDR= lost 0.2%, while the Philippine peso PHP= 0.8% fell. Other countries’ central banks expected to announce decisions on Thursday are Taiwan, Egypt and Paraguay.

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