Jan. 16 (Bloomberg) -- The rand gained against the dollar on speculation its biggest decline in a month, sparked by downgrades of nine euro-region nations’ credit ratings and of South Africa’s outlook, was overdone.
South Africa’s currency appreciated 0.6 percent to 8.0823 per dollar as of 3:52 p.m. in Johannesburg, rebounding from a 1 percent slump on Jan. 13, after Standard & Poor’s stripped France of its top credit rating and cut eight other euro-area nations, while Fitch Ratings reduced its outlook on South Africa’s BBB+ rating to negative from stable. Against the euro it climbed 0.7 percent to 10.2412 today.
The euro, the currency of most of South Africa’s trade, pared losses today after the European Central Bank bought Italian and Spanish notes after S&P warned that Europe’s efforts to fight its crisis are falling short. South Africa’s benchmark stock index advanced and bond yields fell.
“The move on Friday was overdone and once people had time to think about it, it became clear that the ratings news hadn’t changed anything at all,” George Glynos, an economist at Johannesburg-based ETM Analytics, said by phone. “The ECB has stepped in to stabilise the environment and calm people down.”
South Africa’s central bank will leave its benchmark interest rate unchanged on Jan. 19, according to all 20 economists in a Bloomberg survey.
“Fitch’s announcement, coupled with our expectation that inflation likely accelerated to 6.3 percent in December, means that the outcome of this week’s meeting is almost certain to be an unchanged repo rate,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments.
South Africa’s 6.75 percent bonds due 2021 gained, driving the yield down five basis points, or 0.05 percentage point, to 8.04 percent.
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