South Africa's rand reversed losses, rallying more than 3 percent to its strongest in more than a week after the central bank hiked interest rates amid a political showdown that has jolted President Jacob Zuma's government.
The rand has been jolted this week by suggestions that a wealthy family with close ties to Zuma may have been behind his decision to sack the country's respected finance minister Nhlanhla Nene in December.
Stocks also gained with banks in demand after the South African Reserve Bank's move to raise rates.
In comments likely to help calm investors worried about political interference in fiscal and monetary policy after Zuma fired the finance minister in December, Governor Lesetja Kganyago reaffirmed the central bank's independence.
The rand rallied to a session high of 15.0670 to the dollar after Kganyago raised the benchmark repo rate by 25 basis points to 7 percent, citing upside risks to the inflation outlook. The currency had touched a session low of 15.7595 before Kganyago's news conference.
Government bonds also gained sharply, with the yield on debt maturing in 2026 sliding 31 basis points on the day to close at 9.165 percent.
Zuma denied being influenced by anyone in the appointment of cabinet ministers, responding to allegations by his own deputy finance minister that a wealthy family close to Zuma offered him the job of finance minister. [nL5N16P0XW]
The Reserve Bank noted that the increased risk of a sovereign ratings downgrade and domestic political developments had a significant impact on the rand.
"It is probably not a coincidence that Governor Kganyago stressed the SARB’s independence," Capital Economics Africa analyst John Ashbourne said.
"Slightly tighter monetary policy would do little to insulate the rand from another crash if President Zuma provides another political surprise."
On the bourse, banks were among the biggest gainers on the blue chip index as investors bet a 25 basis points interest rates hike would boost margins.
Nedbbank rallied 4.25 percent to 181.40 rand and Standard Bank was up 4.07 percent at 125 rand.
"Banks are having a great day because the higher interest rates will certainly help their margins," said Sanlam Private Wealth's director Greg Katzenellenbogen.
The JSE Top-40 index added 0.73 percent to 47,169 and the broader All-share index gained 0.96 percent to 53,190.
Trade volumes were robust with nearly 570 million shares changing hands, well above last year's daily average 296 million shares, largely because it was the expiration of March-dated futures contracts.