JOHANNESBURG: South Africa's rand gained more than 1 percent on Wednesday after better than expected inflation data cooled bets the central bank would raise lending rates at its meeting on Thursday.
Stocks were fractionally higher for a second session in line with global markets which rallied to shrug off the latest development in the trade spat between the U.S. and China.
At 1524 GMT the rand was 1.71 percent firmer at 14.6400 per dollar, slightly softer than its session-best of 14.6250 - its firmest level since August 31.
South Africa's headline consumer inflation slowed to 4.9 percent year-on-year in August, with economists having expected CPI to rise to 5.2 percent year-on-year.
While analysts expect the central bank to hold rates on Thursday for a third meeting in a row, they also see it striking a more hawkish tone as it weighs economic weakness, the rand's recent plunge and calls for it do more to support economic growth.
The currency has weakened 17 percent against the dollar so far this year, battered by a flight from riskier assets globally as the United States lifts lending rates, made worse by concerns over tepid economic growth locally.
"We expect the current very deflationary environment - the weak economy and subdued price pressures increases will allow SARB to keep rates unchanged for the foreseeable future," said head of research at Old Mutual Johann Els in a note.
"This is assuming the rand stabilises and there are no serious secondary price pressures from the weaker currency," Els added.
Lower inflation and relatively high lending rates have helped South Africa lure yield-hungry investors to buy the currency and bonds despite the poor growth outlook and rising threat of credit downgrades.
Bonds also gained, with the yield on benchmark government paper due in 2026 down 11 basis points to 9.100 percent.
The broader all share index was 0.11 percent firmer at 56,446 points while the top 40 index was 0.10 percent higher at 50,272 points.
"The market and volumes have been fairly healthy today. The rand hedges have been softer today as the rand strengthened," said Ryan Woods, equities trader at Independent Securities.
Private hospital group Life Healthcare's shares jumped to over 7.7 percent after announcing the sale of its entire 49.7 percent stake in Max Healthcare to a global investment firm for 4.3 billion rand ($293 million).
Aspen Pharmacare slumped 7.9 percent, extending losses for a fifth consecutive session, after the company issued a statement aimed at allaying investor concerns the sale of its baby food unit to Lactalis and fears about its debt levels after the release of its financial results last week.
"The voluntary statement did not provide any new information so it is hard to explain the increasingly huge selloff at this stage," said Woods.