Emerging Market News – South African Rand falls after rates unchanged

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The South African rand fell to its weakest level against the US dollar since May 2009 after the central bank kept interest rates unchanged at 5.5 percent. The monetary policy committee (MPC) cut its growth forecast for the rest of the year and signalled there could be a rate cut in order to boost the sluggish South African economy.

The rand fell to a 28-month low of 8.4787 per dollar by 20:45 GMT on Thursday.

Although annual inflation was steady at 5.3 percent in August, the South African Reserve Bank said it still expected inflation to trend higher, pushed up by fuel and power, and food.

The MPC said it was concerned about rand weakening. The South African currency has lost 20 percent against the dollar this month due global growth concerns and a sell-off of risk currencies.

Bank Governor Gill Marcus commented that the economy is fragile and should it worsen more due to the global financial crisis then it would merit an interest rate cut.

Marcus said emerging markets such as South Africa would still experience faster growth but remained vulnerable to a significant slowdown in developed markets.

The MPC is, however, “concerned at the potential impact of the current global turmoil on domestic prospects and stands ready to act appropriately”, she added.