By Mpho Hlakudi.
The rand strengthened below 17 per dollar for the first time since February 2023 after the government adopted a lower inflation target, suggesting interest rates may stay higher for longer than previously anticipated.
The South African currency advanced 0.5% to 16.99 per dollar by 10:35 a.m. in Johannesburg. The rand has rebounded 13% since weakening to a record in April after President Donald Trump imposed steep tariffs on imports from South Africa.
Over time, the lower price-growth target will decrease inflation expectations and inflation, creating room for lower interest rates, according to the National Treasury. That would support household spending and business investment, boosting economic growth, it said in a statement.
The move on the inflation goal follows loud advocacy for the change by Reserve Bank Governor Lesetja Kganyago, who announced his preference for inflation to settle at 3% in July. The central bank cut its benchmark rate twice this year but signalled it will stay on hold to bring inflation toward 3% in 2026.
“The Sarb may have less room to lower interest rates after the finance ministry officially adopted a new lower target for inflation,” Piotr Matys, a senior FX strategist at In Touch Capital Markets, said following the announcement on Wednesday. “If today’s move is sustained, it would favour further retracement in USDZAR, as long as the external backdrop is relatively supportive for risk.”
Federal Reserve interest-rate cuts and a weakening dollar have also supported rand gains, with the currency returning more than 13% in the carry trade this year.