Rand holds at 5-month high after lending rate hike

South Africa’s rand held at a five-month high against the dollar on Friday and looked set for a weekly gain, after the central bank raised the repo rate, citing inflation risks linked to the Ukraine crisis.

At 0610 GMT, the rand traded at R14.51 against the dollar, largely unchanged from previous close and trading at levels last touched in October 2021.

On Thursday, the South African Reserve Bank (SARB) raised its main lending rate by 25 basis points to 4.25%, but the five-member Monetary Policy Committee was split 3-2, with two members preferring a larger 50-basis-point move.

The outcome and the hawkish tone in the statement were in line with analysts and markets’ expectations, Carmen Nel, an economist and macro strategist at Matrix Fund Managers, said in a note.

“However, there were some surprises. The fact that two of the five Monetary Policy Committee members voted for a 50bp increase… while a pause was not discussed suggest that a 50bp hike at one of the following meetings has become a distinct possibility,” Nel said.

The rand has been one of the best performing emerging currencies since Russia invaded Ukraine a month ago, with higher prices for commodities such as gold, palladium, platinum and coal, which benefit resource-rich South Africa, also offering support.

In fixed income, the yield on the benchmark 2030 government bond was up a single basis point to 9.61%.