Picture: REUTERS
Picture: REUTERS

THE rand was weaker in late afternoon trade on Wednesday as talk about further US interest rate increases from some of the Federal Reserve’s policy makers continued to lift the dollar.

Philadelphia Fed President Patrick Harker said on Tuesday the central bank should consider another hike as early as next month, while Chicago Fed President Charles Evans said he expected at least two rate increases this year.

The rand lost as much as 1% against the dollar on Tuesday. Riskier emerging markets were on the backfoot as investors sought safe-haven assets in the wake of terror attacks in Belgium, which killed 31 people and wounded 270.

At 4pm on Wednesday, the rand was trading at R15.3285 to the dollar from R15.2090 at Tuesday’s close.

It was at R17.1619 against the euro from R17.0545 previously and at R21.6828 against the pound from R21.6150 previously.

Adding to the generally risk-averse atmosphere in local markets on Wednesday was the news that inflation had accelerated at a quicker-than-expected pace in February, raising the prospects of further interest rate hikes this year.

Inflation, as measured by the consumer price index (CPI) rose to 7% year on year in February from 6.2% year on year in January -its fastest rate of acceleration in seven years.

Investec economist Kamilla Kaplan said that the South African Reserve Bank was expecting CPI inflation to breach the 3-6% target range this year, at an average of 6.6%.

"Taking into account the Reserve Bank’s inflation forecast and the hawkish policy bent, the repo rate is likely to rise further this year in order to keep real interest rates in positive territory.

"We expect a further 50 basis points increase in the repo rate in July followed by a 25 basis points rise in September," Ms Kaplan said.