The rand plunged to a record low as another jumbo rate hike by the South African Reserve Bank raised concerns about the outlook for economic growth.

The Reserve Bank increased its policy rate by 50 basis points to 8.25%, the highest since the financial crisis, saying restrictive policy is necessary to curb inflation even as it warned that more rand weakness was likely. The move will add strain to an economy that’s forecast to grow by just 0.3% this year in the face of unprecedented electricity shortages.

The rand slumped as much as 2.6% to R19.76/US$, breaching the record-weak level set last week in the wake of a diplomatic row with the US over South Africa’s ties with Russia. The government bond yield curve steepened, with the rate on 2044 securities rising 11 basis points as traders priced in a growth slowdown.

“The health of the local economy is now the primary concern,” said Brendan McKenna, an emerging markets strategist at Wells Fargo Securities in New York. “It’s difficult to make a really compelling case to deploy capital towards South Africa and the rand at the moment. The rand has been an emerging markets currency that has underperformed for most of this year, and given the commentary from the Reserve Bank today, that underperformance is likely to continue.”

All of the monetary policy committee’s five members voted for the half-point increase, the first such unanimous decision since September 2021. There have been a cumulative 475 basis points of interest rate hikes since November 2021, the most aggressive tightening cycle in at least two decades.

Read: Reserve Bank raises rates for 10th time in a row

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

Read: Rand shock for IT sector

The country’s benchmark stock index gained 0.8%, buoyed by companies that benefit from a weaker rand. Luxury retailer Richemont climbed 4.2%, while diversified global miner Anglo American was up 2.4%. — Robert Brand, with Colleen Goko and Monique Vanek, (c) 2023 Bloomberg LP