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South African Reserve Bank hikes key interest rate to 5.50%

Published 01/29/2014, 09:00 AM
SARB hikes key interest rate to 5.50% amid emerging market turmoil

Investing.com - The South African Reserve Bank unexpectedly hiked its benchmark interest rate on Wednesday, as concerns over its weakening currency mounted amid ongoing turmoil in emerging markets.

The SARB said it was raising the benchmark interest rate by 50 basis points to 5.50% in January from 5.0% in December. Most analysts expected no change to the key rate.

Following the announcement, the rand spiked higher against the U.S. dollar, before turning sharply lower, with USD/ZAR rising 2.3% to trade at a multi-year high of 11.2757.

The central bank said a sustained depreciation of the rand will "significantly" raise the risk to the inflation outlook. "Our inflation forecast shows a marked deterioration, despite the absence of clear evidence of domestic demand pressures," the bank said in a statement.

SARB Governor Gill Marcus said she would continue to monitor the situation closely, while adding that she had not been influenced by a similar move in Turkey.

Turkey’s central bank raised its overnight lending rate to 12% from 7.75% and its repurchase rate to 10% from 4.5% in its first emergency meeting since 2011 late Tuesday, in an effort to stem the lira’s decline.

However, the effects of Turkey’s monetary policy move appeared to abate on Wednesday as the lira retraced gains against the dollar, after spiking almost 4%.

Emerging markets economies, such as South Africa and Turkey, have been hard hit in recent sessions by worries over the impact of cuts in Federal Reserve stimulus and concerns over a possible slowdown in China.

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