2023-11-23 10:32:37 ET
The GBP/ZAR exchange rate continued rising on Thursday after the latest South African Reserve Bank (SARB) interest rate decision. The pair soared to a multi-week high of 23.65, which was about 5.50% above the lowest point this year.
SARB decision and UK PMIs
The pound to rand pair rose as traders focused on three important events. First, SARB, the country’s central bank concluded its meeting and decided to leave interest rates unchanged at 8.5%. It also left the prime rate intact at 11.75%, in line with expectations.
The biggest news of the decision was that the bank was engaging experts to find a way of taping its contingency funds to fund the growing deficit. In a statement, the central bank governor said :
“We are engaged with the Treasury. We have also bought in international expertise to engage on these matters, including how to deal with the capital position of the bank.”
South Africa’s contigency funds total about 497 billion francs, which is equivalent to $26.5 billion. These funds generate paper profits or losses depending on fluctuations of the forex and commodities market.
Therefore, tapping these assets will mean selling the reserves and potentially sending shockwaves in the forex market. These reserves are vital because they help the bank deal with vital shocks in the forex market.
The SARB decision came a day after South Africa published strong inflation data . According to the statistics agency, the headline Consumer Price Index (CPI) rose to 0.9% (MoM) in October, leading to a YoY increase of 5.9%.
Core inflation, which excludes the volatile food and energy prices, rose from 0.2% to 0.4% during the month.
UK Autumn Statement and PMIs
The other key catalyst for the GBP to ZAR pair was this week’s autumn statement by Jeremy Hunt , the Chancellor. In it, he decided to slash some taxes in a bid to boost the economic recovery. Besides, the country’s inflation has halved this year.
The other important data came out on Thursday when the UK published encouraging flash manufacturing and services PMI numbers. In a statement, S&P Global said that the country’s services PMI rose to 50.5 in October while the manufacturing figure rose to 46.7.
The closely watched composite PMI rose to 50.1, a sign that the economy is doing modestly well. As a result, UK bond yields rose, with the 10-year and 5-year rising to 4.285% and 4.32%, respectively.
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