March 28, 2018 / 4:27 PM / in 5 months

UPDATE 1-South African rand falls after central bank rate cut

(Updates after central bank rate decision)

JOHANNESBURG, March 28 (Reuters) - South Africa’s rand and banking stocks fell on Wednesday after the central bank lowered its main lending rate for the first time since July and said it thought the currency was overvalued.

Most economists had expected the 25 basis point cut in the repo rate to 6.5 percent, which dented the appeal of local assets versus developed-market peers, though a significant minority had predicted rates would stay on hold.

The rand traded as much as 1 percent weaker versus the dollar in the immediate aftermath of the rate cut before paring losses to trade at 11.7375 per dollar, around 0.5 percent weaker than its overnight close of 11.6800 at 1622 GMT.

Rand assets have been basking in investor optimism since it became clear late last year that President Cyril Ramaphosa would replace scandal-plagued Jacob Zuma as head of state.

Ramaphosa has promised to kick-start economic growth and root out corruption, messages which helped persuade Moody’s to keep the country’s last investment-grade credit rating intact last week.

The South African Reserve Bank’s message on Wednesday that the rand is now “somewhat overvalued” is one more sign that the recent rally is running out of steam.

Capital Economics said in a note that they expected the rand to weaken and that rates would remain on hold for the remainder of the year.

On the equities market, the All-share index fell 2.3 percent to 54,764, weighed down by banking stocks and bourse heavyweight Naspers, which dropped 6.33 percent to 293,193 rand.

Ferdi Heynke, portfolio manager at Afrifocus securities, said Naspers was hurt by uncertainty over its recently announced sale of a portion of Chinese firm Tencent.

In fixed income, the yield on the benchmark government bond was up 1.5 basis points to 7.925 percent, reflecting weaker bond prices. (Reporting by Alexander Winning and Patricia Aruo Editing by Joe Brock)

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