The rand depreciated to the lowest in more than four years against the dollar amid speculation slowing inflation will give South Africa’s Reserve Bank room to lower borrowing costs, reducing the currency’s yield advantage.
The central bank has left its benchmark repurchase rate unchanged at 5 percent since a surprise cut in July to support growth in Africa’s biggest economy. The Monetary Policy Committee announces its decision on interest rates on Thursday as lower commodity prices and slowing consumer demand reduce pressure on prices.
“We stick with our long-standing call that the next move from the Reserve Bank will be a cut of 50 basis points by the first quarter of 2014, and think that the chances of this occurring materially earlier have increased,” Bruce Donald, a foreign-exchange strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “It would be fair to suggest that increasing optimism on domestic interest rate prospects has most likely also played a role in rand weakness.”
South Africa’s currency dropped 0.7 percent to 9.4673 per dollar by 11:51 a.m. in Johannesburg, bringing its decline in the past eight days to 5.1 percent. Yields on benchmark 10.5 percent bonds due December 2026 rose for a seventh day, adding six basis points, or 0.06 percentage point, to 6.89 percent.
Inflation probably slowed to 5.7 percent in April from 5.9 percent the previous month, a report may show on Wednesday, according to the median estimate of 19 economists in a Bloomberg survey.
The MPC will leave its repo rate unchanged this week, according to 19 of 20 economists in a Bloomberg survey. Charles Robertson, chief economist at Renaissance Capital Ltd. in London, predicts a 25 basis-point cut.
Forward-rate agreements starting in December are pricing in more than a 60 percent change of a 50 basis-point cut this year, according to Standard Bank. The contracts climbed two basis points today to 4.81 percent, or 32 basis points lower than the Johannesburg Interbank Agreed Rate.
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