South Africa's rand slips as softer inflation puts rate hike in doubt

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The rand slipped on Thursday after lower-than-expected inflation figures cast doubt on whether South Africa’s central bank would lift rates for the first time in over a year.

At 0640 GMT weakened 0.12 percent to 12.4250 per dollar, treading water as slowing inflation tripped-up bets of a 25 basis point rate hike when South Africa’s Reserve Bank (SARB) announces its decision later in the session.

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The headline inflation print for June showed prices ticking up 4.7 percent year-on-year, lower than the predicted 5.0 percent, raising the likelihood of the central bank keeping its benchmark interest rate at 5.75 percent.

“Conviction in a rate hike has waned,” said Carmen Nel of RMB. “But the reasons for the hawkish signal in May — sticky long-term inflation and rising inflation expectations — have not changed.”

The SARB left rates unchanged in May but signalled that rising oil prices, above inflation wage settlements and a softening currency would make holding rates indefinitely difficult.

Thirty-two economists polled by Reuters in the last week were split almost evenly, with 15 predicting the bank would keep rates on hold given a still-sickly outlook for growth.

Yields on government bonds ticked up, the benchmark issue due in 2026 adding 1 basis point to 8.13 percent.

Traders expect the rand to remain range bound for most of the session leading up to the rates decision at 1300GMT.

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