South African government bonds weakened on Friday, extending the previous day’s losses, after the central bank signalled inflationary pressures were narrowing its scope to pause hiking interest rates.
The rand held steady versus the dollar and was expected to track moves in the greenback on the day, ignoring the moderately hawkish monetary policy statement.
South Africa’s Reserve Bank left interest rates unchanged as expected on Thursday to support the ailing economy, balancing concerns about a deterioration in the inflation outlook with those over weak growth.
At 0645 GMT, the yield on the 2026 benchmark was up 8.5 basis points to 7.855%, after rising as much as 16 basis points on Thursday.
“The SARB indirectly reiterated its preference for, and concern over, core inflation and inflation expectations as opposed to headline inflation,” Alexa Nicolau, a fixed income specialist at Rand Merchant Bank, said in a note.
“This constituted the ‘hawkish’ part of the speech which led to bond weakness.”
The rand was trading at 12.0000 to the dollar, the same as its New York closing level on Thursday.
“Almost all the USD/ZAR moves since the start of March have related to the dollar – as best expressed in EUR/USD – rather than to the rand itself,” RMB analyst John Cairns said.
The dollar had rallied largely on the view that the Federal Reserve could hike rates by as early as June, but the currency has given back some those gains in the wake of the Fed’s latest dovish statement.