Bloomberg News

South Africa Bonds Gain as GDP Data Fuels Rate-Cut Speculation

August 30, 2011

Aug. 30 (Bloomberg) -- South African bonds extended gains, driving four-year yields to record lows, after economic growth slowed more than economists’ expectations in the second quarter, fueling speculation the central bank may cut rates.

The 13.5 percent notes due 2015 climbed 25 cents to 124.44 rand, driving the yield down seven basis points, or 0.07 percentage point, to 6.50 percent as of 12:43 p.m. in Johannesburg, the lowest level on a closing basis on record. The 6.75 percent securities due 2021 soared 57 cents to 93.81 rand, cutting the yield nine basis points to 7.67 percent.

Africa’s biggest economy expanded an annualized 1.3 percent in the second quarter, its slowest pace in almost two years, as manufacturing and mining output plunged. Gross domestic product growth eased 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.

“Today’s GDP figures confirm that the economy slowed sharply in the second quarter,” Nedbank Group Ltd. analysts led by Dennis Dykes wrote in an e-mailed note. “At the monetary policy committee’s next meeting in September, the mounting downside risks to economic growth are likely to dominate, outweighing the upside risks to inflation.”

The Reserve Bank has kept its benchmark interest rate unchanged at 5.5 percent this year to help boost the recovery in the nation’s economy, even as price pressures increased. The central bank will “act appropriately” if a sustained slowdown in the global economy dragged back domestic growth, Governor Gill Marcus said on Aug. 23.

Nedbank expects the central bank to leave rates on hold until May 2012, though the risk of a rate cut has increased, the analysts said.

Forward-rate agreements starting in May dropped four basis points today to 5.32 percent, the lowest in at least 10 years. as investors added to bets the central bank will cut rates.

--Editors: Ana Monteiro, Linda Shen

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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