Cape Town - The rand advanced and South African bonds declined, driving yields to a six-week high, as investors added to bets of a rate increase before the release of data that may show inflation accelerated in December.

The consumer price index rose 5.6 percent last month from 5.3 percent in November, a report may show on January 22, according to the median estimate of 22 economists in a Bloomberg survey.

Investors are increasing expectations that the central bank will lift borrowing costs to counter inflation, with forward-rate agreements pricing in a 50 basis-point increase by May.

“There is now also considerable risk that the pick-up in domestic inflation could endure for longer than the Reserve Bank had expected,” Bruce Donald, head of foreign exchange strategy at Standard Bank Group Ltd. in Johannesburg, said in an e-mail.

“Higher-than-expected numbers could in the short term bolster the currency if they are seen to increase the chances of monetary tightening.”

The currency strengthened 0.3 percent to 10.8326 per dollar by 4:13 p.m. in Johannesburg, a second day of gains.

Yields on benchmark rand bonds due December 2026 climbed three basis points, or 0.03 percentage point, to 8.37 percent, the highest on a closing basis since December 6.

The South African Reserve Bank will keep its benchmark repurchase rate at 5 percent on January 29, according to all 16 economists in a Bloomberg survey.

While maintaining the rate, the central bank’s “rhetoric will stay hawkish,” Donald said.


Strikes Concern


Forward-rate agreements starting in five months rose three basis points to 5.85 percent, the highest since July 2011, according to data compiled by Bloomberg.

The contracts are yielding 62 basis points more than the Johannesburg Interbank Agreed Rate.

Earlier, the rand weakened on concern that strikes at platinum and gold mines will dent exports.

A South African labor union representing most workers at Anglo American Platinum Ltd. voted to strike over wages yesterday, adding to walkouts planned at Impala Platinum Holdings Ltd. and Lonmin Plc and by its members at gold mines.

“Labor tensions are again at the forefront, with exporters in the mining industry unlikely to benefit from the latest bout of rand weakness as strikes grip the mining sector’s top producers,” Thando Vokwana, a bond trader at FirstRand Ltd. in Johannesburg, said in an e-mail.

The currency has retreated 22 percent since the start of 2013.

Foreign investors sold a net 1.49 billion rand ($137 million) of South African bonds on January 17, bringing outflows this month to 4.4 billion rand, according to JSE Ltd. data.

South Africa needs foreign investment of about 19 billion rand a month to finance its current-account deficit, which widened to 6.8 percent of gross domestic product in the third quarter of 2013, Vokwana said. - Bloomberg News