File photo: Reuters

Johannesburg - The rand gained the most among emerging market currencies yesterday, rebounding from a five-year low on expectations the Reserve Bank will raise its key rate again as inflation accelerates. Local stocks fell.

South African bond yields rose to the highest in almost three years after the Federal Reserve trimmed monetary stimulus by $10 billion (R112bn) for a second month.

Ion de Vleeschauwer, the chief dealer at Bidvest Bank, said: “Eventually, higher interest rates should play in the rand’s favour. “But we’re seeing slowing growth, and a sell-off in the bond market, so the rand is caught between two fires. It’s a nervous market out there; the trading range is going to be pretty wide.”

At 5pm yesterday, the rand was bid at R11.1602 to the dollar, 7.46c firmer than at the same time on Wednesday. The yield on benchmark government bonds due December 2026 climbed.

The rand was trading below its fair value and the depreciation in emerging market currencies was partly due to an over-reaction by investors, Finance Minister Pravin Gordhan said on Wednesday. The rand “is behaving as one would expect of a floating currency, by adjusting to various market perceptions”, he said.

Meanwhile, local stocks fell 0.7 percent, with investors dumping banks and retailers after a further cut in US monetary stimulus helped support the sell-off in emerging market assets. Data yesterday showed foreign investors sold a net $26 million worth of local stocks last week, a trend that looks likely to continue. - Bloomberg and Reuters