Rand slips against the dollar

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IOL pic feb28 south african banknotes

Johannesburg - The rand weakened towards a four-year low against the dollar on Tuesday with investors fretting about mining strikes that could affect electricity supply and economic growth in Africa's largest economy.

The rand dropped more than one percent to a session low of 9.2785 against the dollar, not far from a four-year low of 9.2925 set last week, and remained weak even though South African courts issued court orders to impel striking miners to return to work.

Workers at five Exxaro mines have been on an illegal two-week strike to demand bonus payments that the company is refusing to pay. On Tuesday the company obtained a court order compelling the miners to go back to work, but there was no indication they would comply.

Exxaro is the second biggest supplier of coal to state utility Eskom, which generates 85 percent of South Africa's electricity from coal.

The strikes have raised concerns that Eskom will have to introduce power cuts such as ones that hit the country in 2008.

“The local unit remains vulnerable, particularly as news materialises that Eskom may soon resume protracted black outs,” Gareth Brickman, market analyst at ETM told clients in a note.

The outcome of a vote on Cyprus' bailout plan was also keeping investors nervous and the euro weak. The rand often takes cues from the euro as Europe absorbs about a quarter of South Africa's exports.

Bonds prices tracked the weaker rand, with yields up 4.5 basis points to 5.44 percent on the 2015 note and up 5 basis points to 7.45 percent on the 2026 issue.

Inflation data for February is due at 08h00 GMT on Wednesday while the South African Reserve Bank will announce its decision on the benchmark lending rate after 10h00 GMT.

One local bond trader said the market was not expecting the Reserve Bank to change its stance. Economists polled by Reuters expect it to keep the repo rate at which it lends to commercial banks at a four-decade low of five percent.

“There's going to be a bias towards a hawkish statement just on the back of a weaker rand that's going to fuel inflation and petrol prices,” the dealer said. - Reuters


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