South Africa’s rand and government bonds firmed on Tuesday, buoyed by investor optimism over signs of progress towards a lower inflation target.At 1535 GMT the rand traded at 17.6475 against the dollar, up about 0.3% on Monday’s closing level. It earlier struck its best level since November and is up more than 6% so far this year.

The benchmark 2035 government bond was also on a stronger footing, as the yield fell 11 basis points to 9.855%. Annabel Bishop, Investec’s chief economist, attributed the bond market’s gains to comments from the South African Reserve Bank and National Treasury on lowering the country’s inflation target from its current 3% to 6% range.

SARB Governor Lesetja Kganyago has for years stressed his preference for a lower target, saying the current band is too wide and erodes the competitiveness of Africa’s biggest economy. Finance Minister Enoch Godongwana, who would have to sign off on any change to the target, has been less receptive to a change, but a joint SARB and NT team has continued technical discussions in the background.

In its annual report on Monday, the central bank said the SARB and NT team would soon present recommendations to the governor and the finance minister.

“With the Reserve Bank showing a decided preference for a sharp drop in the inflation target … investor confidence has been boosted materially,” Bishop wrote in a research note.

A gauge of local manufacturing sentiment showed signs of improvement in June, reaching its second-highest level this year, though output was still weak. Auto association figures showed a 18.7% year-on-year increase in domestic new vehicle sales in June, better than the 14.3% rise expected by Nedbank economists.The Johannesburg Stock Exchange’s Top-40 index closed up 0.5%.

Reporting by Sfundo Parakozov;Editing by Alexander Winning and Alex Richardson – via Reuters Connect