Bloomberg News

Rand Gains to 2 1/2-Month High After Fed Says Rates to Stay Low

January 26, 2012

Jan. 26 (Bloomberg) -- The rand rose to its strongest level against the dollar in 2 1/2 months after the Federal Reserve signaled it would keep interest rates low until late 2014, boosting demand for higher-yielding assets.

South Africa’s currency appreciated as much as 0.2 percent to 7.8710 per dollar, the strongest level since Nov. 14. It traded 0.1 percent up at 7.8827 per dollar as of 8:15 a.m. in Johannesburg.

The MSCI Emerging Market Index of stocks rose to its highest since October and commodities gained for a second day after the Fed said economic conditions will probably “warrant exceptionally low levels for the federal funds rate at least through late 2014” and Chairman Ben Bernanke said bond buying is “an option that’s certainly on the table.”

“The Fed is reluctant to take its foot off the pedal in terms of being accommodative,” Michael Grobler, an analyst at Afrifocus Securities in Cape Town, said in e-mailed comments. The statement was a “dollar negative event” allowing currencies including the rand “to claw back more ground lost in the fourth quarter”.

The Fed had previously pledged to keep its rate target in place until mid-2013. South Africa’s central bank on Jan. 9 left its benchmark rate unchanged at 5.5 percent, compared with 0.25 percent in the U.S.

South Africa’s 6.75 percent bonds due 2021 yielded 7.91 percent, little changed from yesterday’s close.

--Editors: Stephen Kirkland, Alex Nicholson

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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