- The government cut the inflation target from four point five percent to three percent, making investors believe South Africa will control spending and keep rates high.
- Foreign investors put R175-billion into South African bonds this year, more than double last year.
South Africans could soon pay less for imported goods as the rand gets stronger.
The rand hit R17 against the dollar on Thursday, the strongest it has been in nearly three years. It jumped by zero point eight percent in one day.
The improvement came after the government announced a new inflation target of three percent, down from four point five percent. The Treasury said the lower target will help cut inflation and make way for interest rate cuts later.
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The Reserve Bank cut interest rates twice this year but said it will not cut again until inflation drops closer to the new target.
Foreign investors have poured R175-billion into South African bonds this year. That is more than double what came in last year.
The government is also selling fewer bonds each week. That means less supply and more demand, which pushes up bond prices and supports the rand.
FX strategist Piotr Matys said the rand is benefiting because the lower inflation target stops the Reserve Bank from cutting rates as fast as central banks in other countries, MyBroadband reported.
Analyst Anders Faergemann said the new target shows maturity in South Africa's financial system and gives global investors more confidence.
Precious metals also helped. Gold hit a record high above R4,000 an ounce. Prices for silver and platinum rose too. Raw materials make up over half of South Africa's exports.
The Johannesburg Stock Exchange was the best-performing stock market in the world on Thursday. Investors are now waiting to see if S&P Global Ratings will upgrade South Africa's credit rating.
