Bloomberg News

Rand Declines as Spain Recession Outweighs Higher Credit Growth

April 30, 2012

The rand declined as Spain entered its second recession since 2009, raising fresh concern about the health of the euro area and outweighing a bigger-than-expected increase in credit demand in Africa’s biggest economy.

South Africa’s currency fell as much as 0.5 percent and traded 0.1 percent down at 7.7529 per dollar as of 12:07 p.m. in Johannesburg, reversing an earlier 0.2 percent gain. The rand has weakened 1 percent this month, headed for a second month of losses. The yield on the nation’s 6.75 percent bonds due 2021 dropped less than one basis point, or 0.01 percentage point, to 7.675 percent.

Spain’s gross domestic product fell 0.3 percent in the first quarter, the government said today. In South Africa, borrowing by households and businesses rose 9.2 percent in March, compared with 7.9 percent in February, the Pretoria-based Reserve Bank said on its website today. The median estimate in a Bloomberg survey of 11 economists was 8.6 percent.

“The relatively strong demand for credit may reflect some level of consumer confidence,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “However, there are concerns that upward pressure on the CPI is becoming more broad-based, therefore, an increase in credit could potentially undermine the downward trend in inflation in the months ahead.”

Inflation slowed to 6 percent in March, the top end of the Reserve Bank’s 3 percent to 6 percent target range and the slowest pace since September, as food price increases eased, the statistics agency said April 18. The inflation rate will peak at 6.5 percent this quarter and fall into the target band by the end of the year, Governor Gill Marcus said on March 29.

The Reserve Bank has kept the repurchase rate at 5.5 percent since November 2010 to support economic growth threatened by a debt crisis in Europe, a key trading partner.

The euro weakened for the first time in a week against the dollar and declined for a third day against the yen. The rand often moves in tandem with the euro, with a statistical correlation of 0.60 over the past year. A value of 1 would mean they moved in lock step.

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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