ZAR Gains at Fastest Pace Since October

South African national currency, rand, showed this week a highest gain against U.S. dollar since October, based on a high probability that the South African Reserve BanSouth African Reserve Ban will increase the benchmark interest rate again after the inflation continued to grow.
The rand also gained significantly against Japanese yen, its major carry trade counterpart. With the hawkish intentions of the South African central bank becoming more clear, the interest rates difference attracts more risk-hungry investors. The 11% reference interest rate allows carry traders to earn more than 10% of difference buying rands with Japanese yens or 8% with Swiss francs.
Lifting up the interest rates not only would lower the credit’s growth, but it would also benefit the rand’s appreciation, helping it to overcome the rising inflation. Of course, the side effect in form of a collateral damage to the South African exporters would present as well.
The rand rose to 6.7954 against U.S. dollar yesterday from the 7.0007 level on USD/ZAR at the beginning of this week, producing a 2.9% weekly growth. This means that rand gained 2.6% against dollar this year after 11% and 12% dropdowns in 2006 and 2005 respectively.

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