Rand Trades At 2-day High As SA Central Bank Retains Key Rate

The South African rand reached a 2-day high of 6.8750 against the US dollar in early New York deals on Thursday after the nation's central bank decided to leave its benchmark interest rate unchanged for a second rate-setting session in a row, citing upside risks to the inflation outlook.

The dollar-rand pair that was worth 6.9417 at Wednesday's close is currently quoted at 6.8788. If the rand strengthens further, 6.8160 is seen as the next likely target level.

The South African Reserve Bank held the repurchase rate unchanged at 5.5 percent in line with economists' expectations. The previous policy change was in November, when the key interest rate was cut by 50 basis points to the current level.

The central bank noted that the upside risks and underlying pressures are mainly of a cost push nature. "Given the significant upside risks to the inflation outlook, the MPC will closely monitor any indications of second round effects on inflation emanating from these cost pressures," the bank said in a statement.

The central bank raised its inflation forecast for 2011 to 4.7 percent from 4.6 percent and the outlook for next year to 5.7 percent from 5.3 percent. The upward adjustment is mainly due to revised assumptions regarding the international oil price over the forecast period, the bank said.