Bloomberg News

Rand Snaps 3-Day Rally as GDP Data Fuels Rate-Cut Speculation

August 30, 2011

Aug. 30 (Bloomberg) -- The rand fell against the dollar for the first time in four days as economic growth slowed more than economists’ expectations in the second quarter, fuelling bets the central bank may cut rates. Bonds gained.

The rand retreated as much as 0.6 percent to 7.0967 per dollar and traded 0.4 percent down at 7.0795 as of 3:24 p.m. in Johannesburg, erasing an earlier gain of 0.4 percent.

South Africa’s economy expanded an annualized 1.3 percent in the second quarter, its slowest pace in almost two years, from a revised 4.5 percent in the first quarter, Statistics South Africa said. The median estimate of 18 economists surveyed by Bloomberg was for an expansion of 1.6 percent.

“The softer GDP growth print does not bode well for growth prospects going forward, which is rand-negative from a GDP differential perspective,” Shireen Darmalingam, an analyst at Standard Bank Group Ltd. in Johannesburg, wrote in an e-mailed note. “The data poses upside risks to portfolio outflows, particularly out of the South African equity market, as investors search for better economic growth prospects elsewhere.”

Foreign investors have sold a net 9.47 billion rand ($1.3 billion) of South African equities this year, compared with 20.5 billion rand of net purchases in the corresponding period last year, according to data from JSE Ltd., which manages the country’s stock exchange.

Bonds Rise

European governments have pared spending this year to ease the region’s debt crisis, limiting exports to a region that buys about a third of South African manufactured goods. That’s weakening the recovery in Africa’s biggest economy, adding to expectations the central bank may keep its benchmark interest rate at a 30-year low of 5.5 percent this year or possibly reduce it, narrowing the rand’s yield advantage.

Bonds gained for a third day. The 13.5 percent notes maturing in 2015 rose 13 cents to 124.32 rand, driving the yield down four basis points to 6.527 percent. The 6.75 percent securities due 2021 climbed 22 cents to 93.45 rand, cutting the yield three basis points to 7.73 percent.

Forward-rate agreements starting in January, which investors use to lock in borrowing costs, dropped three basis points today to 5.31 percent, the lowest in at least 10 years, according to data compiled by Bloomberg. The contracts are pricing in a 50 percent chance of an interest rate cut this year, Darmalingam wrote.

--Editors: Ana Monteiro, Claudia Maedler

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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