South African rand weaker as central bank signals gradual approach



(Updates after rate decision)

JOHANNESBURG, Jan 27 (Reuters) - South Africa's rand weakened on Thursday as the central bank raised interest rates by the expected margin and suggested it would only increase rates gradually in the future.

By 1610 GMT, the rand ZAR=D3 traded at 15.3850 against the dollar, 0.3% weaker than its previous close.

The South African Reserve Bank called the decision to increase its repo rate ZAREPO=ECI by 25 basis points "measured". It said its monetary policy committee believed "a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored".

Governor Lesetja Kganyago told a news conference that a hike larger than 25 basis points was not discussed at this week's monetary policy committee meeting.

"The accompanying statement and comments from officials support our view that rates will not be raised as aggressively over 2022-23 as investors currently expect," Capital Economics said in a research note.

Also contributing to rand weakness, the dollar .DXY soared to its highest levels since July 2020, powered by bets the U.S. Federal Reserve could deliver faster and larger rate hikes in the months ahead.

Shares on the Johannesburg Stock Exchange, which had opened heavily weaker after the Fed overnight flagged rate hikes beginning in March, recovered most of the lost ground in afternoon trade after the South African central bank's comments.

Local economy-focused stocks such as banks, financials, retail and real estate did well.

The benchmark All-share index .JALSH closed down 0.4% to end at 73,504 points. The blue-chip index of top 40 companies .JTOPI was down 0.44% to 67,070 points at the end of the day's trade.

The banking index .JBANK was up 0.92% while the index of real estate investment trusts (REITs) .JREIT closed up 0.42%.

Petrochemicals major Sasol SOLJ.J continued to outperform the broader market by a wide margin with the stock up 3.7% driven by the oil price LCOc1 nearing $90 a barrel.

The government's benchmark 2030 bond ZAR2030= gained, with the yield falling 1.5 basis points on the day to 9.335%.
Reporting by Alexander Winning and Promit Mukherjee; Editing by Andrew Heavens

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