Ayanda Shezi

Economics Correspondent

THE rand broke through the psychological level of R6 to the dollar yesterday, adding to the case against a rate cut next month, as the greenback strengthened against the euro.

The rand fell as low as R6,08 to the dollar yesterday, its lowest level since February 17, down 1,8% from its previous close of R5,97.

Analysts said that the Reserve Bank was likely to remain cautious and leave the repo rate unchanged at 7,5%, to avoid fuelling inflationary fears.

"Should the rand trade above R6 in the weeks leading up to the monetary policy committee meeting next month, this will be a further factor, along with high oil prices and strong domestic demand, weighing against another rate cut," NKC economist Hugo Pienaar said.

The relatively stronger rand has until now kept inflationary fears at bay as international oil prices continued to rise on the back of supply constraints and increased demand during the northern hemisphere’s winter season.

Locally, petrol prices are set to increase 42c/l next month, while wholesale diesel prices will increase 33c/l. These prices are expected to increase further as the 10c/l fuel levy, announced by Finance Minister Trevor Manuel in his national budget speech, kicks in.

The Bank left rates unchanged at its meeting last month, citing the volatility of the rand, strong domestic demand and high oil prices as some of the reasons for not cutting rates.

Brent crude was little changed yesterday at $53,24 a barrel, ahead of the Organisation of Petroleum Exporting Countries meeting in Isfahan, Iran, today to decide on pricing and production quotas for the second quarter.

Analysts said the local currency’s breach of the R6 to the dollar level would not be a long-term phenomenon as the rand was still in a primarily bullish trend.

"The rand could weaken to R6,15 or even R6,20 to the dollar, and still be in a primary bullish trend," Econometrix treasury management analyst George Glynos said.

Gold also fell on the back of the firmer dollar. The metal was trading at $440,40/oz yesterday, down from $441,95/oz at Monday’s close.

The dollar was trading at $1,3353 to the euro, trading below $1,34 for the second day.

Glynos said the reason the rand’s fall was quite sharp compared with other commodity-based currencies, such as the Australian dollar, was because of its "inherent volatility", which tended to cause higher magnitudes in the rand’s movements.

The JSE Securities Exchange SA took advantage of the weaker rand, racing to a new record, with the all share index gaining to 13674,36 points.