Bloomberg News

Rand Declines Versus Euro, Bonds Gain on Rate-Cut Speculation

September 20, 2011

Sept. 20 (Bloomberg) -- The rand declined for a fifth day versus the euro and bonds gained on speculation the central bank will signal further rate cuts this week after the International Monetary Fund lowered its global growth estimate.

The rand weakened as much as 0.6 percent to 10.5892 per euro, the weakest since Aug. 9, and traded down 0.4 percent as of 4:12 p.m. in Johannesburg. The 13.5 percent bonds due 2015 added 44 cents to 122.732 rand, driving the yield down 12 basis points, or 0.12 percentage point, to 6.871 percent.

The IMF cut its forecast for global economic growth this year to 4 percent and predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan. South Africa’s Reserve Bank announces its interest-rate decision on Sept. 22, after saying last month it will “act appropriately” in the event of a significant global slowdown.

“Although domestic inflation has accelerated recently, the Monetary Policy Committee is likely to assign greater importance to the risks emanating from the worsening situation in the U.S. and euro zone,” Standard Bank Group Ltd. analysts led by Johannesburg-based Michael Keenan wrote in a research note. While “the risk of a rate cut is not insignificant,” Standard expects the bank to keep rates on hold until the third quarter of 2012, they wrote.

Forward-rate agreements for March, after the MPC’s first rates meeting for 2012, dropped nine basis points, or 0.09 percentage points, to 5.28 percent today as investors increased rate-cut bets.

Inflation Report

The Reserve Bank has left its repo rate at 5.5 percent, a 30-year low, since November, even as inflation accelerated to 5.3 percent in July. Prices growth quickened at a rate of 5.5 percent in August, a report tomorrow will show, according to the median estimate of 20 economists in a Bloomberg survey.

Foreign investors were net buyers of 978 million rand ($128 million) of South African bonds yesterday, according to the JSE Ltd., after selling 6.4 billion rand of the nation’s debt last week on concern Europe’s debt crisis is causing funding problems for the region’s lenders.

“With bond yields at these levels there is real value for foreign investors,” Chris Becker, an analyst at Econometrix Treasury Management in Johannesburg, said by phone. “The rand sell-off has been very aggressive. It looks like the tide may start to turn slowly.”

Earlier, the rand retreated to its weakest level since July 2010 against the dollar after Standard & Poor’s cut Italy’s credit rating, adding to concern Europe’s debt crisis will raise borrowing costs for the region’s largest economies. The currency pared its decline, trading 0.2 percent weaker at 7.7293 per dollar as of 4:09 p.m.

--Editors: Ana Monteiro, Peter Branton

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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