In early trading on Wednesday, the South African rand fell to a 2-day low against the dollar as investors continued to sell the local currency on an interest rate cut by the South African central bank yesterday.
Yesterday, the South African Reserve Bank reduced its repurchase rate by 100 basis points to 9.5% per annum with effect from March 25.
The South African economy has not escaped from the impacts of the developments in the global financial markets and domestic production has contracted as a result of weak domestic demand and a significant decline in export demand, the central bank said in a statement accompanying the decision.
The bank forecasts consumer price inflation to average 8.1% in the first quarter of 2009 and then to decline to below 6% in the third quarter of the year. In January, the inflation rate fell for a fifth consecutive month to 8.1%. Yet, it is above the target band of 3%-6%.
The weak global demand has been reflected in the export performance of the South African economy, the central bank said.
In the fourth quarter of 2008, the economy had contracted 1.8% mainly due to a 22% decline in manufacturing sector output. Weak economic indicators point to further deterioration in economic activities in the first quarter of 2009.
At 12:55 am ET today, the rand slumped to a 2-day low of 9.6325 against the dollar. The next downside target level for the South African currency is seen at 9.71. At yesterday's close, the dollar-rand pair was quoted at 9.4921.
Investors are now likely to focus on the South African Reserve Bank's quarterly bulletin and the CPI report for February, which are due in the upcoming hours.
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