Cape Town - Traders are adding to bets on the first South
African rate cut in more than four years after data showed the current-account
deficit, a key risk for the rand, narrowed and consumer inflation slowed for a
second month.
Forward-rate agreements starting in December fell seven
basis points to 7.03 percent on Wednesday, 30 basis points lower than the
benchmark three-month Johannesburg Interbank Agreed Rate, suggesting traders
see the central bank’s policy rate falling this year. The rand and government
bonds gained, while stocks fell after the S&P 500 Index tumbled the
most since Donald Trump’s election on Tuesday.
South Africa relies on foreign investment in stocks and
bonds to help fund the current-account gap, which swelled to 6.9 percent of GDP
in 2013. A smaller shortfall relieves pressure on the rand, which may extend
gains after reaching a 19-month high against the dollar on Tuesday, according
to Treasuryone. That may cap the cost of imports, further slowing inflation and
enabling the central bank to ease policy for the first time since August 2012.
“The batch of South African data published today will
have provided welcome relief for the central bank,” William Jackson, a senior
emerging-markets economist at Capital Economics Ltd. in London, said in a note.
“The narrowing of the current account deficit and fall in core inflation
reinforce our view that the Reserve Bank will loosen monetary policy this year
in order to support the weak economy.”
The current-account shortfall narrowed to 1.7 percent of
gross domestic product in the fourth quarter, less than the median forecast of
3.2 percent, according to estimates compiled by Bloomberg. Consumer inflation
slowed to 6.3 percent in February from a year ago, in line with expectations.
The rand gained 0.8 percent 12.5875 per dollar by 3:12
p.m. in Johannesburg, one of only four emerging-market currencies to strengthen
on Wednesday. Yields on government rand bonds due December 2026 fell eight
basis points to 8.38 percent, the lowest since November 2015, while the
benchmark FTSE JSE Johannesburg All Share Index dropped 1.7 percent.
“The rand takes its cue from the international front, but
the current-account data has helped today,” Wichard Cilliers, a trader at
Treasuryone, said by phone from Pretoria. The currency may breach 12.50 per
dollar in coming months for the first time since August 2015, he said.