Rand softens as South African Reserve Bank raises key rate to 7.25%

The South African rand weakened in early trade on Friday after the country's central bank raised its key interest rate, with the currency also pressured by expectations that the Federal Reserve will keep US rates elevated. At 0610 GMT the rand traded at 16.40 against the dollar, roughly 0.3% below its previous close.

The South African Reserve Bank lifted its key rate by 25 basis points to 7.25%. The central bank said the Iran war had triggered "large and sustained" price shocks and that tighter policy was needed to stop higher inflation becoming entrenched. Governor Lesetja Kganyago said it was crucial for inflation to return to the central bank's 3% target as recent fuel-price pressures fade. South Africa is a net fuel importer and, as such, is heavily exposed to swings in global energy prices.

The rand's move came alongside broader dollar strength. The US currency was set for its first back-to-back weekly gains in more than three months, supported by surging Treasury yields and mounting bets on further Fed rate rises, leaving the greenback near multi-month peaks.

South Africa's benchmark 2035 government bond was steady in early deals, with its yield unchanged at 8.72%. Domestic investors will next week track a raft of month-end economic data, including money supply, private sector credit, the trade balance and the budget balance, as well as producer inflation and second-quarter formal sector employment figures.