SA yields on 2-week high, rand slips

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IOL bus jul22 JSE Independent Newspapers File photo: Leon Nicholas.

South African bonds fell, driving yields to the highest in almost two weeks, before a report that may show inflation in the country accelerated in June. The rand weakened, erasing an earlier gain.

The consumer price index rose 5.8 percent last month, compared with a 5.6 percent increase in May, a report tomorrow may show, according to the median estimate of 19 economists in Bloomberg survey.

While the bank won't preemptively raise borrowing costs to curb inflation, price increases are preventing it from stimulating an economy expanding at the slowest pace since the 2009 recession, Governor Gill Marcus said last week after leaving the benchmark rate unchanged.

"With the monetary policy stance becoming even more data- dependent in this very uncertain environment, each inflation print is becoming more important," Asher Lipson, an analyst at Standard Bank Group Ltd in Johannesburg, said in e-mailed comments.

Yields on benchmark 10.5 percent bonds due December 2026 climbed 15 points, or 0.15 percentage point, to 8.02 percent as of 11:06 a.m. in Johannesburg, the highest on a closing basis since July 10.

The rand was 0.2 percent weaker at 9.8442 per dollar after earlier gaining as much as 0.3 percent. The currency has dropped 14 percent this year, the most of 24 emerging market currencies monitored by Bloomberg.

The rand's weakness, together with above-inflation increases for wages and administered prices, is limiting economic growth, the South African Reserve Bank said in its Annual Economic Report released in Johannesburg today.

"Factors that have and could possibly add to domestic inflationary pressure include the depreciation in the exchange value of the rand, high administered price inflation and wage increases in excess of inflation," the Pretoria-based bank said.

Foreign investors bought a net R1.3 billion of South African bonds yesterday, according to JSE Ltd.

Data yesterday showed sales of previously owned U.S. homes unexpectedly dropped in June, bolstering the case for the Federal Reserve to maintain bond purchases to stimulate growth. -Bloomberg

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