South Africa’s Rand Pares Gain as Inflation Unexpectedly Slows

JOHANNESBURG (Capital Markets in Africa) – South Africa’s rand pared an advance against the dollar and benchmark bond yields extended a drop as traders cut bets on an interest-rate increase this year after inflation unexpectedly slowed last month.

Growth in the consumer price index eased to 4.4 percent in May, from 4.5 percent the previous month. The median estimate of economists in a Bloomberg survey was for the inflation rate to accelerate to 4.6 percent.

Some traders were banking on a rate increase that would support the rand, after South African Reserve Bank Deputy Governor Kuben Naidoo said the central bank would act if the currency’s plunge in the past two months fueled price increases. Before today’s data, forward markets were pricing in 36 basis points of increases by year-end, but that that fell to 26 basis points after the inflation report.

The currency was 0.4 percent stronger at 13.6911 per dollar by 10:21 a.m. in Johannesburg after gaining as much as 0.8 percent. Yields on 2026 government bonds fell nine basis points to 9.06 percent. Forward-rate agreements starting in December dropped 8 basis points to 7.16 percent, or 26 basis points above the benchmark three-month Johannesburg Interbank Agreed Rate.

Source: Bloomberg Business News