Rand Climbs as SARB Hikes Rates to Counter Inflation Risk
South African Rand (ZAR) rallied against Western currencies late on Thursday after the South African Reserve Bank raised key rates by 25 basis points.
The rate adjustments align with First National Bank (FNB)’s prediction to lift the repo rate to 7%, and the prime lending rate surged to 10.5%, according to details in the monetary policy committee statement.
The six-member monetary policy committee lifted the benchmark rate by 25 basis points to 7%, Governor Lesetja Kganyago told reporters in Pretoria on Thursday.
In response, the rand traded around 16.3 per US dollar, holding near its highest level since mid-April. The inflation outlook worsened for this year and next, and growth projections were lowered for both periods.
The central bank again provided three alternative scenarios for the policy outlook, suggesting that further monetary policy tightening may be needed if the war in Iran drags on.
The local currency gain was constrained by US dollar strength and falling prices of key precious metals, especially gold – one of the country’s mainstream sources of earnings.
The U.S. dollar was higher on Thursday, just off its strongest level since early April, as doubts grew over prospects for a deal to reopen the Strait of Hormuz and as focus shifted to possible U.S. interest rate hikes.
South African Reserve Bank Governor Lesetja Kganyago said the central bank’s projections reflect second-round effects of higher energy prices due to the war in Iran “as the shock broadens out into wages and inflation expectations.”
The SARB anticipates raising rates once this quarter. If inflation eases in the coming years as expected, the SARB could resume cutting rates. The dollar falls 0.3% to 16.3121 rand, little changed from levels before the decision. South African Reserve Bank Hikes Rates 25bps to Fight Inflation

