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Johannesburg - The rand weakened against the dollar on Thursday as news that a Malaysian plane had been shot down in Ukraine heightened geopolitical tensions, erasing earlier gains after the central bank raised interest rates.
At 17:20, the rand traded at R10.7285 to the US currency, down 0.45% from Wednesday's close and pulling away from a session high of R10.6450 reached after the rate hike.
The South African Reserve Bank (Sarb) raised the interest rate at which it lends to commercial banks by 25 basis points to 5.75%, citing upward risks to the inflation outlook.
Governor Gill Marcus stressed that while the bank was concerned about weak economic growth, its primary mandate was to rein in inflation which has breached the top end of a 3% to 6% target band.
But she said the relatively moderate 25 basis point increase - instead of the 50 basis point adjustment the bank has traditionally raised rates by - was supportive of growth, and that any future moves would be gradual.
The yield on the 2026 government bond initially climbed to 8.23% before coming back to close 5.5 basis points lower on the day at 8.13%.
The paper due next year, which is most sensitive to movements in rates, added 2 basis points to 6.645%.
"Having attempted to show its teeth, it is likely that the Sarb will hike interest rates again over the coming year or so," Shilan Shah, an economist at Capital Economics, said in a note.
"Inflation is set to continue accelerating due in large part to the lagged effect of the weakness of the rand over the past year and rising labour costs following the recent wage settlements."
A five-month strike in the platinum sector ended last month with miners receiving double-digit wage increases.
At 17:20, the rand traded at R10.7285 to the US currency, down 0.45% from Wednesday's close and pulling away from a session high of R10.6450 reached after the rate hike.
The South African Reserve Bank (Sarb) raised the interest rate at which it lends to commercial banks by 25 basis points to 5.75%, citing upward risks to the inflation outlook.
Governor Gill Marcus stressed that while the bank was concerned about weak economic growth, its primary mandate was to rein in inflation which has breached the top end of a 3% to 6% target band.
But she said the relatively moderate 25 basis point increase - instead of the 50 basis point adjustment the bank has traditionally raised rates by - was supportive of growth, and that any future moves would be gradual.
The yield on the 2026 government bond initially climbed to 8.23% before coming back to close 5.5 basis points lower on the day at 8.13%.
The paper due next year, which is most sensitive to movements in rates, added 2 basis points to 6.645%.
"Having attempted to show its teeth, it is likely that the Sarb will hike interest rates again over the coming year or so," Shilan Shah, an economist at Capital Economics, said in a note.
"Inflation is set to continue accelerating due in large part to the lagged effect of the weakness of the rand over the past year and rising labour costs following the recent wage settlements."
A five-month strike in the platinum sector ended last month with miners receiving double-digit wage increases.
