The rand surged to its strongest level against the dollar in two months and government bond yields fell after South Africa’s deputy finance minister said an announcement on the country’s inflation-targeting regime is imminent.

The South African Reserve Bank and National Treasury are “working very hard to establish the appropriate inflation framework” and an announcement would be made “very soon,” David Masondo said at an investor conference in Cape Town.

The rand jumped as much as 1.1%, leading emerging-market currency gains, on expectations that a lower inflation target would keep monetary policy tighter for longer to put a brake on price increases. The yield on benchmark 2035 bonds fell seven basis points to the lowest since early March.

“A lower inflation target will imply real rates remain higher than would otherwise have been the case, which is rand-supportive,” said Mamokete Lijane, global markets strategist at Standard Bank. “Also, the expectation would be that there would be inflows into government bonds which is supportive of capital inflows.”

The Treasury and SARB have been in talks on a new inflation framework since February 2024. The current target band is 3% to 6%, with a preference for price growth to be anchored at the midpoint. Central bank Governor Lesetja Kganyago has advocated a single-point inflation target of 3%, which would be more in line with South Africa’s peers.

The rand traded 1.1% higher at 18.0643 per dollar by 2:20 p.m. in Johannesburg, its highest intraday since March 18 and heading for its strongest close since Dec. 16.