Rand slumps to record low

South Africa’s currency, the Rand, has dropped to a record low following a significant rate hike by the South African Reserve Bank (SARB).

The central bank raised its policy rate by 50 basis points to 8.25%, the highest since the financial crisis, in an attempt to curb inflation, warning that further weakening of the rand was probable. This move is expected to put further pressure on South Africa’s economy, which is already strained by severe electricity shortages and is only predicted to grow by 0.3% this year.

The currency’s devaluation is linked to concerns over the country’s economic growth and its diplomatic ties with Russia.

Bloomberg’s forecast model suggests a 53% chance of the rand breaching 20 per dollar within the next week. The market’s reaction to the rate hike suggests it may have been a policy mistake, while the steepened yield curve shows investors are worried about the nation’s growth prospects.

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