Bloomberg News

Rand Weakens for Third Day as Fed Refrains From New Stimulus

December 14, 2011

Dec. 14 (Bloomberg) -- The rand weakened for a third day as the U.S. Federal Reserve refrained from taking new measures to spur growth and on concern that Europe’s debt crisis will erode demand for South Africa’s commodities.

The currency of the continent’s biggest economy declined as much as 1 percent to 8.3789 per dollar and traded 0.5 percent weaker at 8.3326 as of 8:20 a.m. in Johannesburg, extending losses this week to 2.9 percent.

Fed policy makers said that the U.S. is maintaining growth even as the global economy slows, disappointing investors that were expecting the central bank would signal plans for a third round of asset purchases known as quantitative easing, or QE3. German Chancellor Angela Merkel rejected yesterday increasing the upper limit of funding for Europe’s permanent bailout mechanism.

“Markets were expecting the announcement of QE3 by the U.S. Federal Reserve, but the Fed did nothing substantial to improve monetary conditions” at yesterday’s Federal Open Market Committee meeting, Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., and colleagues wrote in e-mailed comments. “The risk lies in further weakness today.”

Standard & Poor’s GSCI index of commodities fell 0.3 percent, while copper for three-month delivery dropped as much as 1.4 percent for a third day of losses. Commodities make up more than half of South Africa’s total exports, according to Rand Merchant Bank.

Inflation Report

South African bonds declined for an eighth day before the release of a report that may show consumer inflation accelerated to 6.2 percent in November from 6 percent a month earlier, according to the median estimate of 20 analysts surveyed by Bloomberg.

The yield on 13.5 percent bonds due 2015 rose three basis points, or 0.03 percentage point, to 6.929 percent, the highest on a closing basis since Nov. 29. The yield climbed four basis points yesterday.

“While this outcome could be rand-positive from an interest-rate differential perspective, negative global sentiment is likely to weigh heavily on the rand,” Guma wrote.

--Editors: Ana Monteiro, Alastair Reed

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

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


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