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South Africa’s rand strengthens after central bank holds interest rate
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- The rand has gained about 4 percent against the dollar this week and 13 percent this year.
The South African rand rallied on Friday a day after the Reserve Bank of South Africa retained its benchmark interest rate at 7 percent as inflationary pressure eased in August.
The rand traded at R13.5983 per dollar as at 9.05AM in Johannesburg compared with R13.6514 per dollar yesterday. The currency has gained about 4 percent against the dollar this week and 13 percent this year after losing over 25 percent of its value in 2015, according to Bloomberg.
"Any market rally is always prone to a profit-taking/covering bounce. Be aware these can be vicious and quick," John Cairns of the Rand Merchant Bank told Business Day South Africa. “Be aware also that Fridays are particularly prone to this sort of action as traders close out positions before the weekend. Our bias is to see the rand losses as a stumble in the rally rather than anything more. The rally has been so amazingly strong that it is not going to dissipate so sharply."
On Thursday, Lesetja Kganyago, the RBSA governor, said the bank’s Monetary Policy Committee voted to keep the repurchase rate unchanged given the improvements in the inflation forecast which is balanced by a weak domestic economic outlook. The consumer price index fell marginally to 5.9 percent in August from 6 percent recorded in the previous month, retreating into the central bank’s target band of 3 to 6 percent for the first time this year.
“The MPC remains concerned about the overall inflation trajectory which remains in the upper end of the inflation target range,” the central bank governor said.
Kganyago signaled that the apex bank may have reached the end of its policy-tightening cycle, which began in 2014 in a bid to push inflation within the bank’s target rate.
“The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle,” he said. “The committee is aware that a number of the favourable factors that have contributed to the improved outlook can change very quickly resulting in a reassessment of this view.”
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