The South African rand edged up in early trade on Friday, as investors looked ahead to the central bank's interest rate decision next week.

At 0732 GMT the rand traded at 16.11 against the dollar, about 0.1% up from its previous close.

The South African Reserve Bank (SARB) is set to announce its decision on the main lending rate, following a 25-basis-point cut at its previous meeting in November.

This will be the second meeting since the finance minister officially confirmed that the central bank's inflation target is now 3%, from a range of 3-6%.

Investec chief economist, Annabel Bishop, said in a research note that the monetary policy meeting seeks to suppress the inflation environment and over the medium-term embed the inflation rate at the new target of 3.0% y/y.

The country's statistics agency released December inflation data this week, which showed headline consumer inflation increased to 3.6% year-on-year from 3.5% in November, as predicted by analysts polled by Reuters.

However, analysts said they still expect the central bank to deliver several interest rate cuts this year as price pressures remain well contained.

"Much depends on the inflation outlook, and environment, which currently is expected to become embedded at the 3.0% y/y target over the medium term, allowing for a sustained lower interest rate environment," said Bishop.  

On the Johannesburg Stock Exchange, the Top-40 index was last up 1% early trade.

South Africa's benchmark 2035 government bond gained in early deals, as the yield fell 7 basis points to 8.185%.