South Africa’s rand firms before interest rate decision

JOHANNESBURG (Reuters) – South Africa's rand firmed against the dollar early on Thursday before the Reserve Bank's fifth interest rate decision of the year as some market players anticipated a hike in rates.

The bank has raised the repo rate by 75 basis points since the start of the year during what it calls a gradual hiking cycle as inflation rises. The bank said further moves will be highly dependent on data.

The consensus of economists polled last week said the bank would stay put on raising rates until its November meeting, but views may have changed after upbeat retail sales data and quickening inflation on Wednesday backed the case for an increase.

"Although FRA pricing today suggests hikes, the market is still on the fence," said Alexa Nicolau of Rand Merchant Bank in a market note.

"Before yesterday, the local economy seemed unable to absorb a hike without any disturbance but the combination of worse-than-anticipated inflation and decent retail sales is a clear signal that the economy can handle the hike and, indeed, may need it."

At 0635 GMT, the rand was up 0.34 percent at 10.9970 to the dollar, compared with a 11.0350 close in New York on Wednesday.

The Reserve Bank's inflation expectations survey will be released by the Bureau of Economic Research at 1300 GMT, coinciding with the start of Governor Gill Marcus' speech on monetary policy.

The yield on the benchmark 2026 government bond rose 3 basis points to 8.22 percent, trading within Wednesday's levels as dealers awaited the rates decision.