South Africa's short-term interest rates rose sharply on Wednesday as the market bet Reserve Bank Governor Gill Marcus would be forced to raise the repo rate to keep up with emerging market peers.
Rates on three-month paper due in four months rose to about 5.54 percent from 5.41 percent the previous day, a sign the market disagrees with analysts who predicted Marcus would keep rates at four-decade lows due to lacklustre domestic growth.
All 34 economists surveyed by Reuters last week – before Turkey's central bank shocked investors with a huge rate hike on Tuesday - said the bank would keep the repo rate at which it lends to commercial banks unchanged at 40-year lows of 5 percent.
South African Forward Rate Agreements (FRAs) due in 12 months jumped to nearly 7 percent, suggesting rates in Africa's biggest economy could go up by as much as 200 basis points this year.
"The market has priced in a 60 percent chance of a rate hike today," said Sijadu Mzozoyana, an interest rate trader at Investec.
"The bunch of rate hikes from other emerging market economies has put pressure on Marcus to hike rates because there's a fear she's going to be left behind if she doesn't move and foreign money will then invest in other emerging market economies."
The South African Reserve Bank has kept the repo rate unchanged since a cut in July 2012 as it balances the risks to inflation with growth that has remained below 3 percent since a 2009 recession.
Marcus is due to announce her decision from 1300 GMT. The rand opened stronger on Wednesday but reversed course after a rally in Turkey's lira lost steam. It hit a session low of 11.1900, more than 1.5 percent down against the dollar and drawing close to its recent 5-year trough of 11.2550.
It recouped some of the losses to 11.1575 by 1129 GMT, down 1.3 percent from Tuesday's close.
"These are extremely volatile markets. It's Turkey again," said Bidvest Bank trader Ion de Vleeschauwer, predicting more volatility after Marcus's speech.
"Everybody is going to watch Gill Marcus and what she has to say and what she doesn't say. Brace yourself. This is not an easy market to trade."