South Africa's rand slides after central bank keeps lending rates unchanged

JOHANNESBURG: South Africa's rand slipped to a two-week low on Thursday after the central bank kept lending rates unchanged despite a wave of rate increases by other emerging markets.

At 1540 GMT, the rand traded at 15.0500 against the dollar, 0.47% weaker than its previous close.

The currency dipped to a session low 15.0875 after the Reserve Bank's (SARB) decision, which while in line with consensus was more dovish in tone than expected.

Governor Lesetja Kganyago seemed to play down the impact of the volatility caused by rising U.S. bond yields, according to analysts, pushing out the timing of policy normalisation, or tightening, to as far as 2022.

"While market inflation concerns have spiked, the SARB doesn't seem overly concerned that a sustained episode of surging inflation is ahead of us," said economists at ETM Analytics in a note.

"We do see some risk of policy normalisation towards the back end of the year. That said, the degree of policy normalisation is expected to be more moderate than the market is currently pricing in."

South Africa's consumer inflation rate slowed to 2.9% in February, its lowest in eight months and below the central bank's target range of between 3% and 6%.

The bank said it sees inflation averaging 4.3% in 2021, up from January's forecast of 4%.

Stocks fell overall in a volatile session, with the morning's strong opening losing steam. Local shares did recover slightly before the closing bell after the central bank decision.

The benchmark all-share index ended 0.73% lower at 64,784 points while the blue-chip top 40 companies index slipped 0.82% to 59,279 points.

The main indexes are now back to levels seen in the beginning of February, after scaling an all-time high in the first week of March.

Analysts have said rising treasury yields in the United States are a signal that inflation is going to rise in the coming months, spooking investors and forcing many to book profits.

Inflation erodes the value of returns made by investors on their investments.

The recent fall has also been exacerbated by rising cases of COVID-19 in Germany and France and fears of a third wave locally.