South Africa follows in Fed's footsteps

The South African Reserve Bank surprised the market yesterday by raising its policy rate to 6.75%, mostly due to of a slight drop in inflation forecasts. This decision has been the subject of intense debate within the Monetary Policy Committee, with three members voting to raise rates and the remaining three voting to keep them on hold.

This certainly indicates that the status quo will likely remain in place at upcoming meetings until more data are available on the evolution of the rand and inflation.

Though the market was surprised by the decision, traders investing in South African assets know very well that the SARB tends to follow the Federal Reserve's monetary policy, as we can see in the chart below. It was only a matter of time before the SARB decide to hike rates.