Rand under pressure

Published Nov 27, 2014

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Johannesburg - South African government bonds traded near their year's high on Thursday, buoyed by the falling global price of oil which is helping to temper inflation expectations in Africa's most advanced economy.

The yield on benchmark 2026 bonds gave up two basis points to 7.675 percent, nearing the 2014 low of 7.665 percent hit on Friday, as lower crude prices signalled benign inflation.

Official data showed factory gate prices moderated in October, also boding well for consumer inflation and steady interest rates.

“The recent decline in oil prices and less volatility in the rand exchange rate will support a more moderate level of PPI inflation over the next three to six months,” Christie Viljoen at Cape-Town based research house NKC said.

Market players said the data was likely to convince the South African Reserve Bank (SARB) that there was no immediate pressure to hike interest rates.

The SARB announced a gradual tightening cycle as the rand plunged to 5-year lows at the start of the year.

It raised rates 75 basis points this year but chose to leave them steady at 5.75 percent at its last two policy-setting meetings.

“However, policymakers will not be able to wait much longer than the middle of next year, with the US Fed expected to lift its interest rates in H2 of 2015. South Africa needs higher interest rates to compete for investment flows,” Viljoen added.

The rand weakened slightly, tracking a euro pressured by soft German inflation figures.

The rand had dipped to 10.9830 against the dollar at 18:06 SA time, off a 10.9645 close in New York on Wednesday.

The currency is likely to remain in tight ranges until the release of monthly trade data on Friday.

The trade figure is usually a sore point for the rand as it highlights South Africa's external vulnerabilities, especially wide fiscal and current account deficits. - Reuters

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