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South Africa’s central bank raised its key interest rate on Wednesday, aiming to break free of a dramatic rush out of bonds and currencies of vulnerable emerging-markets around the world.

South African Reserve Bank Governor Gill Marcus said the bank’s monetary policy committee voted to raise the so-called repo rate 50 basis points to 5.5%.

In the past week, investors have hammered emerging markets with wide current-account deficits and domestic political problems. As the U.S. Federal Reserve dials back its expansive bond-buying program, these traders expect Treasury yields to rise, giving them less incentive to shoulder the higher political risks that come with higher yields on emerging-market assets.

South Africa has been among the hardest hit. Its currency, the rand, fell more than 5% against the U.S. dollar this month–on top of a 24% decline in 2013–and foreign investors have pulled $1.7 billion out of South African stocks and bonds.

Ms. Marcus had kept the key rate at 5% since July 2012. She said Wednesday that the flight from South African assets had become too pronounced, and inflationary pressures were too serious to delay a hike any further.

“The process of normalization has begun, and the spill-overs have implications for our own monetary policy,” Ms. Marcus said.source:


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