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Rand firmer after inflation undershoots

Economists are uncertain if the slowdown in inflation will prompt an interest rate cut in September.

South Africa’s rand firmed early on Thursday, boosted by a lower than expected inflation reading that eased investors’ concerns about economic growth.

At 0800 GMT the rand was 0.25% firmer at 15.15 per dollar compared a close of 15.19 overnight in New York.

Headline consumer price inflation slowed to 4.0% year-on-year in July, the lowest since January and below a consensus forecast of 4.2%, data from Statistics South Africa showed on Wednesday.

Read: SA inflation surprise a tailwind for bonds and rand

Inflation rate falls to six-month low in July

Lower inflation against relatively high interest rates marginally supports the rand’s carry yield attraction, but with chances diminishing that US benchmark rates will go lower and credit rate risk rising locally, the rand’s gains could be short-lived.

Economists are divided over whether easing inflation will push South Africa’s Reserve Bank to cut rates again at its September meeting after cutting them by 25 basis points 6.5% in July.

Bonds were firmer, with the yield on the benchmark 10-year government issue down 4 basis points at 8.225%.

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