JOHANNESBURG: South Africa's rand fell more than 1.2 percent to a fresh 4-year low against the dollar on Thursday, largely tracking a retreat in high-yielding currencies after the US Federal Reserve signalled a scale-back of its stimulus drive.
The slide will stoke concerns about imported inflation pressures and all but shuts the door on a rate cut when the South African Reserve Bank concludes its third policy meeting of the year later in the day.
The rand hit 9.6980/dollar, the weakest it has been since March 31, 2009. It was the steepest faller against the greenback among 20 emerging market currencies tracked by Reuters.
By 0644 GMT the local unit had pulled back slightly to 9.67, still down 1 percent on the day.
"It's a reflection of Ben Bernanke's comments yesterday," said John Cairns, a currency strategist at Rand Merchant Bank.
The Federal Reserve chairman said the bank could "in the next few meetings take a step down" in its bond purchases and warned that holding interest rates too low in the world's biggest economy had its risks.
"The dollar strengthened significantly and risky assets have come under a lot of pressure and the rand didn't fully reflect that in overnight trade," Cairns said.
Near-zero interest rates in developed economies have spurred demand for high-yielding emerging market assets in recent months, although in South Africa's case this has been offset by investors' worries that violent strikes by mine workers could spread.
Government bonds came under selling pressure and yields were up in early trade as the market braced for a hawkish tone from the Reserve Bank, which is expected to hold the benchmark repo rate at 5 percent.
The yield for the benchmark 2026 paper jumped 10.5 basis points to 7.075 percent while the shorter-dated 2015 issue rose 4 basis points to 5.22 percent.
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