Rand eases after Fed taper decision

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NewRandMoney

Reuters.

Johannesburg - South Africa's rand was slightly weaker on Thursday following the US Federal Reserve's announcement that it would begin scaling back its massive bond-buying stimulus from January.

The rand was at 10.3700 to the dollar at 08:30 SA time, down 0.3 percent from Wednesday's New York close.

The Fed on Wednesday modestly trimmed the pace of its monthly asset purchases by $10 billion to $75 billion, saying the US economy was finally strong enough for it to start tapering.

Fed chairman Ben Bernanke said the purchases would likely be cut at a “measured” pace through much of next year if job gains continued as expected, with the program fully shuttered by late-2014.

The rand has been under pressure in the last few months partly due to fears of a reduction in foreign portfolio flows to South Africa as the era of easy money comes to an end.

But the Fed softened the blow of its announcement by saying interest rates would remain low.

“Even a marginal tapering of QE by $10 billion remains ultra-accommodative, and supportive of the global asset market boom, and capital flow environment to Africa,” ETM analyst Chris Becker said.

“It is going to be a monumental task with significant downside risks to the bond market and general economy when this balance sheet must be shrunk to tighten policy materially, which is why the Fed is going to err on the side of loose policy for a while to come still.”

On Wednesday, ratings agency Fitch affirmed South Africa's BBB rating with a stable outlook.

The yield on the benchmark 2026 government bond edged up 2 basis points to 8.225 percent while that on the 2015 paper was 3 basis points higher at 6.105 percent. - Reuters


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