* Rand strengthens on prospect of higher rates
* Emerging market bonds follow U.S Treasuries
JOHANNESBURG, March 16 (Reuters) – South Africa’s rand
stood its ground against the dollar on Friday boosted by the
waning strength of the U.S. currency and after central bank
Governor Gill Marcus hinted that higher interest rates may be in
store.
The rand was trading at 7.5836 percent at 1635 GMT,
0.5 percent higher than Thursday’s close of 7.6265.
Marcus, in a statement on inflation released late on
Thursday, sounded hawkish, saying inflation was now showing
signs of demand-side pressure rather than only external factors.
Analysts took that as a signal that interest rates could rise
given that previously Marcus had said the central bank would not
raise interest rates given the lack of demand pressures.
The upward inflation trajectory in recent months was mainly
driven by only cost-push pressures such as food, fuel and
administered prices.
With inflation expected to return back into the South
African Reserve Bank’s 3-6 percent target by the final quarter
of this year, interest rate differentials will only get better
for investors should the repo rate increase.
The South African Reserve Bank has kept the repo rate
unchanged at 5.5 percent since November 2010 after cutting it by
650 basis points from 2008 in an effort to stimulate a sluggish
economic recovery.
“SARB Governor, who we felt alluded to the possibility of a
normalization in South Africa’s historically low interest rate
environment, is also conducive to a firmer rand from a carry
trade perspective,” said Absa Capital in a client note.
Continued…
