Last Wednesday (4th May) the US Federal Reserve (FED) announced an increase of half-a percentage point in their key interest rate. This represents the highest rate hike in 22 years. The increase is an attempt by the FED to combat the highest US inflation rate in 40 years. According to FED Chairman, Jerome Powell, similar rate hikes will be on the table for the next few meetings. However, he ruled out 75 basis point rate hikes.
The US dollar surged to its highest level in two decades, as the South African Rand finds itself on the backfoot. A rising dollar tightens financial conditions around the world and usually has a dire effect on emerging markets (EM). EM’s typically respond by tightening its monetary policy (increasing interest rates) to ensure their currency value stays intact and regulates inflation. These developing countries also need to keep the cost of servicing dollar-denominated debt at manageable levels.
Looking at the week ahead: The African Mining Indaba starts today (9 May) in Cape Town. The Indaba will be addressed by Mineral Resources & Energy Minister, Gwede Mantashe.