Bloomberg News

Rand Gains for Second Day on Bets ECB May Restart Bank Loans

October 06, 2011

Oct. 6 (Bloomberg) -- The rand strengthened for a second day on bets the European Central Bank may reintroduce loans to banks, boosting appetite for riskier assets.

The currency of Africa’s biggest economy appreciated as much as 1.8 percent to 7.8762 per dollar and traded 0.6 percent up at 7.9705 as of 5:41 p.m. in Johannesburg.

ECB President Jean-Claude Trichet, fronting a policy decision for the final time, said the bank will resume covered- bond purchases and reintroduce year-long loans for lenders as the sovereign debt crisis threatens to lock money markets. The ECB will spend 40 billion euros ($53 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12- and 13-month durations, Trichet said at a press conference in Berlin today. The bank resisted calls to cut interest rates.

“More accommodation from the ECB may have soothed concerns, especially with regard to the global growth outlook,” Michael Keenan, Standard Bank Group Ltd.’s head of currency research, said by phone from Johannesburg. “The lingering debt crisis is not going to turn around quickly. We are going to have this volatility in the dollar-rand as long as there is uncertainty.”

ECB officials meeting in Berlin left the benchmark rate at 1.5 percent, as predicted by 41 of 52 economists in a Bloomberg News survey. Five forecast a cut to 1.25 percent and six expected a reduction to 1 percent. With Greece on the brink of default, the ECB is under pressure to step up efforts to stop contagion by shoring up the euro region’s bond markets and helping banks weather the storm.

Rates on Hold

“The decision to keep rates on hold is disappointing the market,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said by phone. “Some people had been hoping they would cut even though the consensus was for no move and, combined with a new resolution to deal with the banking sector stress, bring an end to this mounting crisis.”

South African government bonds rallied for a third day, with the 13.5 percent securities due 2015 adding 15 cents to 122.739 rand, driving the yield down four basis points to 6.803 percent.

The rand has weakened 17 percent this year, the worst performer of more than 20 emerging-market currencies tracked by Bloomberg.

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Stephen Gunnion in Johannesburg at

To contact the editor responsible for this story: Gavin Serkin at

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