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South Africa’s central bank raised interest rates, but this provided little support for the rand, which has fallen to its weakest levels this year.
While the South African Reserve Bank met market expectations, policymakers’ comments were interpreted as dovish, as they stated that further tightening would be gradual.
The rand’s woes were exacerbated by a risk-off mood in markets, with other developing-nation currencies such as the ruble and the Chilean peso falling against the greenback.
The currency fell as much as 1.7 percent to R15.7657 per dollar, the lowest on a closing basis since November 5 last year, and was last trading at 15.7095 in late afternoon trading. Benchmark 10-year government bond yields remained unchanged at 9.95 percent.
Following better-than-expected economic data, markets are bracing for the Federal Reserve to tighten policy sooner than expected. Russia, Brazil, and Hungary have all raised interest rates, and Poland has joined them this month.
“The split decision suggests that the SARB’s rather hawkish rate path will be difficult to meet,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “FX market didn’t like the signal, with USD/ZAR at the highs for the year.”
Story by : Norvisi Mawunyegah