Reserve Bank. Picture: SUPPLIED
Reserve Bank

THE US Federal Reserve (Fed) left benchmark interest rates — which are still at record lows — unchanged on Wednesday night, after a liftoff on rises last month.

The move will give emerging markets a bit of a breather. But the South African Reserve Bank is still expected to raise rates on Thursday as the weak rand has stoked higher inflation.

"The Fed statement is dovish," said Nedbank economist Isaac Matshego.

"They are cognisant of recent global developments and the statement reaffirmed the cautious approach in their hiking cycle. This is likely to provide short-term support to the rand and other emerging-market currencies."

But, he warned that the Bank was still likely to hike rates by 50 basis points on Thursday. "The rand is down almost 15.5% against the dollar since the last monetary policy committee meeting in November. This has brought pressure on inflation."

Despite the Fed decision, ETM Analytics economists believe a 75-basis points rate increase, which is the most hawkish outlook, is possible.

"We feel that a forceful move by the Bank would send a message that it is serious about containing rand depreciation and other upside inflation risks. There is a risk that failure to raise rates significantly could precipitate more negative currency speculation and that is more detrimental to growth over the longer term."

The Fed said it was "closely monitoring" global economic and financial developments, but maintained an otherwise upbeat view of the US economy.

The decision was widely expected after a month-long plunge in US and world equities raised concerns that an abrupt global slowdown could act as a drag on US economic growth. "The committee is closely monitoring global economic and financial developments, and is assessing their implications for the labour market and inflation," the Fed’s policy-setting committee said in a statement that diminished the chances of a rate hike at its next meeting in March.

The Fed removed a previous reference from its statement to the risks of the economic outlook being balanced. Instead, the central bank said it was weighing how the global economy and financial markets could affect the outlook.

Fed policy makers did not give updated forecasts on the path of monetary policy, but said they expected the labour market would continue to strengthen and the economy would expand even with "gradual adjustments in the stance of monetary policy".