JOHANNESBURG: South Africa's rand strengthened for a second straight session against the dollar on Thursday after producer inflation rose, backing the case for a rate hike sooner rather than later.
At 1400 GMT the rand had gained 0.62 percent to 12.0870 per dollar, its strongest in over a month, taking advantage of lack of movement in the dollar and euro as Greek debt negotiations remained inconclusive.
South Africa's producer price inflation quickened to 3.6 percent year-on-year in May from 3.0 percent in April, pushing the rand through the 12.10 technical barrier it has struggled to break this week.
"A break of 12.10 should see the rand try to head to the 11.95/98 support," said Warrick Butler, a currency trader with Standard Bank, in a note.
Earlier in the week central bank governor Lesetja Kganyago said the current pause in South Africa's monetary policy tightening cycle was likely to be temporary due to mounting inflationary pressures.
"At the moment the general economic environment is not conducive for interest rates to be raised significantly. We believe they will move up gradually, by 25 basis points," said Johannes Khoza, an economist at Nedbank.
South Africa's Reserve Bank has kept the benchmark repo lending rate on hold at 5.75 percent at its last five policy meetings.
Government bonds were mostly flat, with yields on the benchmark issue due in 2026 shedding 0.5 basis points to 8.225 percent.
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