Cape Town - The rand declined for the first time in three days, retreating from a five-week high, as Federal Reserve officials start a two-day policy meeting before a report that may show South African inflation is accelerating.
The Federal Open Market Committee will probably decide to cut its monthly bond purchases, which have fueled demand for high-yielding assets, to $75 billion from $85 billion, according to the median estimate of economists in a Bloomberg News survey on September 6.
South Africa’s inflation rate increased in August above the central bank’s 3 percent to 6 percent target range for a second month, a report may show tomorrow.
“The rand remains vulnerable to tougher global funding conditions and the risk to the currency remains skewed towards further weakness,” Theuns de Wet, head of fixed-income research at Rand Merchant Bank in Johannesburg, said in an e-mailed note.
“The market will probably start looking towards the FOMC decision. We would therefore expect the rally of the last few days to start to lose some steam.”
The rand depreciated 0.3 percent to 9.8437 per dollar as of 10:14 a.m. in Johannesburg.
Yields on benchmark 10.5 percent bonds due December 2026 rose four basis points, or 0.04 percentage point, to 8.11 percent.
South Africa’s inflation rate probably rose to 6.4 percent in August from 6.3 percent the month before, according to the median estimate of 21 analysts in a Bloomberg survey.
Rising prices are limiting the South African Reserve Bank’s room to stimulate the economy.
The central bank will leave its key repurchase rate unchanged at 5 percent on September 19, according to all 18 economists surveyed.
Foreign investors bought a net 2.28 billion rand ($232 million) of South African bonds yesterday, the most in a day since July 30, according to JSE Ltd. data.
Non-residents also bought 119 million rand of equities, the data shows. - Bloomberg News