South African rand holds gains after SARB focuses on lower inflation target
The South African rand held most of the previous day's gains in early trade on Friday, after the central bank stressed its strong preference for a lower inflation target at a monetary policy announcement.
The South African Reserve Bank (SARB) presented detailed modelling of the impact of a 3% inflation target, compared to the 4.5% level it aims for at the midpoint of its current 3% to 6% target range.
The SARB, which resumed interest rate cuts on Thursday after a pause in March, added that its Monetary Policy Committee felt a 3% target was "more attractive" and said it would continue to consider scenarios based on that target at future rate meetings.
"Investors focused on the implications of a lower target, namely lower inflation, reduced interest rates, bond market inflows, and stronger long-term growth, which further support the rand," ETM Analytics said.
Other factors that point to more rand resilience include a solid trade surplus, tight credit cycle and signs of prudence in government finances, the research firm added in a note.
At 0650 GMT, the rand traded at 17.8425 against the dollar, about 0.1% weaker than Thursday's closing level.
Weighing against the rand was a stronger dollar on global markets.
The benchmark 2035 government bond was stronger in early deals, as the yield fell 4 basis points to 10.13%.
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