Rand Strengthens for Fifth Day as ECB Lends More-Than-Expected to EU Banks

The rand strengthened for a fifth day, the longest winning streak in two weeks as the European Central Bank said it will lend banks more than forecast for three years, lifting demand for higher-yielding risk assets.

South Africa’s currency appreciated as much as 1.7 percent against the dollar and traded 0.2 percent stronger at 8.1958 as of 3:35 p.m. in Johannesburg. The rand has gained 2.5 percent this week, making it the best-performer of 16 major currencies tracked by Bloomberg. For the year, the rand is the worst performer with a 19 percent slump against the U.S. currency.

The ECB awarded 489 billion euros ($645 billion) in 1,134- day loans to euro-area lenders, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark rate -- currently 1 percent -- over the period of the loans. They start tomorrow.

“Support lent to the European situation from the ECB has increased risk appetite and that, together with exporter flows, has pushed the rand a bit stronger,” Ion de Vleeschauwer, chief dealer at Johannesburg-based Bidvest Bank Ltd., which runs South Africa’s largest chain of moneychangers, said by phone.

The rand has ended December higher in seven out of the last 10 years to 2010 as exporters switch their proceeds into the South African currency, while importer demand for dollars falls. This year, exporter selling has been “soaked up by risk-off demand for dollars,” de Vleeschauwer said.

“I think with sentiment turning slightly positive we have seen the exporter flows now being bigger than the importer flows,” de Vleeschauwer said. “I would be treating this with a bit of caution though because we need the momentum to be sustained.”

South Africa’s 13.5 percent bonds due 2015 advanced for a fifth day, driving the yield 8.7 basis points, or 0.09 percentage point, lower to 6.801 percent.

To contact the reporter on this story: Stephen Gunnion in Johannesburg at sgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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