The South African rand drifted lower in early trade on Thursday while traders waited for the central bank to deliver its first interest rate decision since the government confirmed a single inflation target of 3 percent.
The currency was at 17 point 2225 to the United States dollar at 0728 GMT, a slight slip of about zero point two percent compared with Wednesday’s close.
The South African Reserve Bank is expected to announce later today whether it will keep its main lending rate unchanged or begin a cautious loosening cycle. A Reuters poll showed economists fairly split, with fourteen expecting the repo rate to stay at 7 percent and fifteen predicting a quarter point trim.
Consumer prices quickened to 3 point 6 percent in October compared with 3 point 4 percent in September. According to Reuters, this keeps inflation inside the updated tolerance margin that surrounds the new 3 percent goal. Before last week’s formal confirmation from the finance minister, the bank had worked with a broader range that ran from 3 to 6 percent.
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Volkmar Baur, an analyst who commented on the latest figures, said the mixed picture adds pressure on policymakers. In his words, growth of roughly 1 percent combined with inflation just above the target area has made calls for interest rate relief “louder”. He shared the view in a research note circulated on Wednesday.
Some market watchers believe the vote could be finely balanced because a decision to hold steady would underline the central bank’s intention to defend the new target during its introduction period. The bank has said the shift toward a single point target will take effect gradually.
South Africa’s benchmark government bond maturing in 2035 was unchanged in early Thursday dealings. The yield held at 8 point 675 percent.
Investors will now look to the Reserve Bank’s statement for clues on how firmly it intends to anchor policy to the new inflation setting and what that may mean for borrowing costs through the rest of the year.