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South Africa’s rand weakens after below forecast inflation data

South Africa's rand weakens after below forecast inflation dataJOHANNESBURG: South Africa’s rand weakened against the dollar on Wednesday ahead of Thursday’s interest rate decision after a lower-than-expected inflation number reduced the odds of a rate hike.

At 1433 GMT, the rand was trading 0.59 percent weaker at 12.3990 to the dollar compared with its closing level on Tuesday.

“The downside surprise to CPI generated some selling pressure given that the market interpreted it as an indication that the (central bank) is going to refrain from hiking tomorrow,” said Jana van Deventer, a market analyst with ETM Analytics.

South Africa’s headline consumer inflation quickened to 4.7 percent year-on-year in June, well below expectations, compared to 4.6 percent in May, data from Statistics South Africa showed.

Emerging market currencies were also under pressure due to renewed dollar strength, van Deventer said, as traders ponder the timing of a US Federal Reserve rate increase this year.

Analysts had been almost evenly split on whether South Africa – caught between the prospect of rising inflation and sickly growth – would keep interest rates steady at 5.75 percent or raise them by 25 basis point.

Government bonds strengthened, with the yield for the 2026 benchmark was down 3 basis points to 8.125 percent.

Copyright Reuters, 2015

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