The Johannesburg Stock Exchange. File picture: Siphiwe Sibeko

Johannesburg - South Africa's rand firmed on Thursday as investor appetite for emerging markets improved slightly following the US Federal Reserve's decision to keep interest rates on hold, but investors remained cautious ahead of a local rate decision.

The Fed kept interest rates unchanged as expected and said the US economy was still on track for moderate growth, offering a bit of respite for emerging market economies.

As central banks in some advanced economies move away from the era of historically low interest rates, emerging markets that have wide current account deficits to fund are expected to be hit the hardest as the supply of liquidity tightens globally.

The rand firmed by more than one percent at 0953 GMT, before trimming it's gains. By 1124 GMT, the local currency was 0.74 percent firmer at 16.3180 to the dollar compared to where it closed in New York.

South African government bonds strengthened alongside the rand, with the yield on paper due in 2026 shedding 5.5 basis points at 9.550 percent.

“The strength that we are seeing today is mostly an emerging market play rather than rand specific and the risks are that the rand might not be able to retain this resilience if the Reserve bank doesn't come out with a bold move,” said ETM Analytics market analysts Jana van Deventer.

The South African Reserve Bank is expected to raise interest rates later in the afternoon as it looks to curb climbing inflation.

An expected hawkish statement from the South African Reserve Bank should keep investors on their toes as they ponder the state of Africa's most advanced, yet slowing, economy.

The South African bourse also rallied, with the Top-40 up 1.56 percent to 43 614 points and the broader all-share index adding 1.44 percent to 48 614 points.