JOHANNESBURG (Reuters) -South Africa’s rand firmed against the dollar on Thursday after the central bank raised its main interest rate by a higher than forecast 50 basis points to 7.75%.
At 1521 GMT, the rand, which flirted with an almost 2 percentage point jump right after the surprise decision, was trading at 17.8600 against the dollar, up 1.45% from its previous close.
It breached the 18 rand per dollar barrier for the first time in over six weeks.
A majority of economists polled by Reuters had expected the South African Reserve Bank to announce a 25 basis point increase, but central bank governor Lesetja Kganyago said inflation expectation was still on the upside.
“Despite some easing of producer price and food inflation, global price levels remain elevated,” he told a media conference.
Statistics South Africa data showed last week that February inflation rose to 7.0% year on year from 6.9% in January, remaining above the bank’s target of between 3% and 6%.
With interest rates now well above the rate of inflation, it means investors are earning a higher rate on their investment than the rate at which prices are going up, generally considered a positive trend.
But analysts were not convinced that the local currency would reflect that sentiment for long.
“The rand is a short-term beneficiary of the surprise decision to hike rates more than was anticipated,” said Shaun Murison, senior market analyst at IG.
The longer trend of the so-called riskier currency is towards weakening, he added.
Shares on the local bourse continued their upward trajectory for the fourth consecutive day with the blue-chip Top 40 index closing 0.32% higher at 71,089 points while the benchmark all-share index ended up by 0.29% at 76.705 points.
The blue-chip index has gained almost 3.5% in market value this week, primarily driven by an improvement in bank and mining stocks.
The government’s benchmark 2030 bond was stronger, with the yield down 8.5 basis points to 9.900%.
(Reporting by Anait Miridzhanian and Tannur Anders; Editing by James Macharia Chege, Promit Mukherjee and Jonathan Oatis)
