The South African rand rebounded today after yesterday’s decline on the speculation the central bank will keep its interest rates unchanged, continuing to draw foreign investors.
South Africa’s interest rates are important for the rand as the differential between the South African rates and the borrowing costs in the developed markets attract investors interested in carry trades. The main interest rate of South Africa is at 5.5 percent, compared to 0.25 percent in the USA, 1.25 percent in the European Union and 0.1 percent in Japan. The South African Reserve Bank left the benchmark repo rate unchanged on November 10 for the sixth consecutive month. Analysts consider probability on an interest rate cut as low.
Economists expect that the government report will show tomorrow that the consumer price inflation rose to 5.9 percent in October from 5.7 percent in September. The weakening rand contributed to the price growth. As long as the upward pressure on inflation remains, the central bank isn’t likely to reduce its lending rates and South Africa will continue to be attractive to carry traders.
USD/ZAR fell from 8.3150 to 8.2430 today before trading at 8.3030 as of 11:24 GMT. Yesterday, the currency pair rose from 8.1740 to 8.3140.
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