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Rand on shaky ground

Johannesburg - The rand weakened more than 1% against the dollar and government bonds dropped after data on Wednesday showed that headline consumer inflation in July breached the ceiling of the central bank's target band.

The rand was at 10.2670 to the dollar at 09:00 GMT, down 1% from its close in New York on Tuesday.

The yield on the 2026 government bond rose 4 basis points to 8.615%.

South Africa's headline consumer inflation breached the ceiling of the central bank's target band in July, overshooting market expectations as higher fuel prices weighed on consumer prices.

Headline inflation in July hit 6.3% year-on-year, accelerating from 5.5% in June, data from Statistics South Africa showed on Wednesday.

On a month-on-month basis, July CPI stood at 1.1% compared with 0.3% in June, Statistics South Africa said.

The market had expected inflation to quicken past the central bank's 3% to 6% target range, but at a slightly lower rate of 6.2% year-on-year, and for month-on-month CPI to quicken to 0.9%.

"This jump was to a large extent driven by the sharp increase in petrol prices in July, but there was also broader-based pressure. The data does not change our view that interest rates will remain steady until 2015," said Elna Moolman, an economist at Macquarie First South Securities.

A weak local currency resulted in petrol prices rising to R13.23 a litre in July from R11.86 at the start of the year.

The rand has fallen 21% against the dollar since the start of the year and dealers expect that a sell-off of emerging market assets could push the local currency back to a four-year low of R10.36/$, last tested on June 11.

Economists have said the central bank is unlikely to move on interest rates at its next rate-setting meeting in September, however the risk of a rate hike is heightened by the inflationary pressure.

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