ZAR Heads for Biggest Weekly Drop

The South African rand headed for the biggest weekly loss against the U.S. dollar in the last three months as the traders were concerned that the high interest rates will prevent country’s economy to rise at a fast pace.

After the central bank said that the inflation will probably keep above the bank’s target 3-6 percent rate for at least until 2010, the rand reached its lowest value against the dollar since April 17 yesterday. The South African Reserve Bank is expected to increase the official repurchase rate from 11.50 percent to 12.50 percent on its next meeting on June 12.

Major investors believe that, while the rate hikes are probably the only right treatment for the accelerating inflation, the tight monetary conditions may significantly hurt the Africa’s biggest economy growth.

And while the higher interest rate can be a positive factor for the South African currency, the global unwillingness to hold the carry trade positions paired with the instability of the national economy can turn higher rates against the rand as it probably already happens now.

USD/ZAR rate rose this week on the Forex market from 7.6005 to 7.8223 as of 13:13 GMT today with a daily maximum at 7.8821- more 2.8 percent gain, making it a highest weekly growth for this currency pair since the week starting February 3 this year.

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