(Updates with analyst comment from fourth paragraph.)
June 21 (Bloomberg) -- South Africa’s seven-year borrowing costs fell to a five-month low at a government debt auction on speculation the central bank won’t raise interest rates in 2011 as it strives to aid a recovery in Africa’s biggest economy.
The Pretoria-based Reserve Bank auctioned 1 billion rand ($148 million) of 8 percent bonds due 2018 at an average yield of 8.235 percent, 1.5 basis points, or 0.015 percentage point, lower than at the previous auction of the debt on May 3, and the lowest since the Jan. 11 sale according to central bank data on Bloomberg. Investors bid for 2.5 times the amount on offer, compared with 1.9 times at the previous sale.
While the Reserve Bank predicts that inflation will breach its 3 percent to 6 percent target range in the first quarter of 2012, it has kept the key interest rate at 5.5 percent this year. The bank won’t raise interest rates to curb rising prices caused by global oil and food prices, central bank Chief Economist Monde Mnyande said today.
“Local growth prospects remain clouded by considerable downside risks,” Nedbank analysts led by Dennis Dykes said in a research note. “The Monetary Policy Committee will probably remain reluctant to tighten monetary policy too quickly or aggressively as higher interest rates will do little to contain inflation but will hurt the economy and job creation.”
Nedbank expects the first interest-rate increase in the first quarter of 2012, even after central bank data today showed consumer spending is increasing and the current account deficit widened more than economists’ expectations.
The central bank also auctioned 1.1 billion rand of 2021 bonds at an average yield of 8.365 percent. Investors bid for 2.9 times the amount offered, it said.
“Today’s auction was very strong, one of the strongest in recent weeks,” Leon Myburgh and Coura Fall, Johannesburg-based analysts at Citibank NA, said in a research note. “Today’s result is consistent with the reasonably bullish bias in the market since yesterday from good demand from offshore accounts.”
Foreign investors were net buyers of 405 million rand of South African bonds yesterday, according to data compiled by JSE Ltd., which manages the nation’s equity and debt markets.
Household spending increased an annualized 5.2 percent in the first quarter, compared with 4.8 percent in the previous three months, the Pretoria-based Reserve Bank said in its Quarterly Bulletin today. The shortfall in the current account, the broadest measure of trade in goods and services, expanded to 3.1 percent of gross domestic product from a revised 1 percent in the previous three months, more than the 2.8 percent median estimate of 17 analysts in a Bloomberg survey.
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