Investing.com - The South African rand tumbled more than 2% against the dollar on Wednesday after the county’s central bank hiked interest rates in a failed attempt to prop up the currency amid a renewed selloff in emerging market assets.
USD/ZAR hit 11.3785, the highest since October 2008 and was last up 2.39% to 11.2763.
The South African Reserve Bank raised its benchmark interest rate to 5.5% up from 5.0%, the first rate hike since June 2008.
The central bank said a sustained depreciation of the rand will "significantly" raise the risk to the inflation outlook.
"Our inflation forecast shows a marked deterioration, despite the absence of clear evidence of domestic demand pressures" the bank said. “We will continue to monitor developments closely and will not hesitate to act as required in keeping with our mandate.”
Emerging market countries have come under pressure to raise interest rates following a broad based selloff in recent sessions, triggered by worries over the impact of reduction in Federal Reserve stimulus and concerns over a possible slowdown in China.
Emerging market economies are particularly vulnerable to reductions in the Fed’s asset purchase program, as they rely heavily on foreign investment to fund their huge current account shortfalls.
Turkey’s central bank unveiled dramatic rate hikes at an emergency monetary policy meeting overnight, in a bit to stave off inflation and shore up the lira, which fell to record lows against the dollar and the euro on Monday.
The lira rallied almost 4% against the dollar following the announcement, before retracing those gains. USD/TRY was last up 0.92% to 2.2727, holding below Monday’s record high of 2.3895.
Investors were looking ahead to the Fed’s policy statement later in the trading day, amid expectations that the bank will cut its asset purchase program by another $10 billion, to $65 billion per month.
The central bank announced the first cut to its stimulus program in December.
Elsewhere, EUR/ZAR spiked 2.15% to 15.3933, while EUR/TRY was up 0.66% to 3.0999, holding below Monday’s peaks of 3.2729.