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South African Forward Rates Sink to Record Low on Rate-Cut Bets

July 13 (Bloomberg) -- South African money-market futures, used to gauge interest-rate expectations, slumped to the lowest-ever level and bonds gained as speculation increased the central bank will lower its main rate to boost the economy.

Forward-rate agreements showed that contracts for three-month cash due in three months fell as much as 3 basis points from yesterday to 6.27 percent, the lowest since the central bank first introduced its repurchase rate in 1999, before trading at 6.29 percent by 4:09 p.m. in Johannesburg. South Africa’s benchmark 13.5 percent bond due September 2015 rose for a sixth day, climbing 12 cents to 124.40 rand and reducing the yield by almost 3 basis points to 7.68 percent.

Analysts are raising bets the Pretoria-based Reserve Bank will lower its 6.5 percent benchmark rate when it meets on July 22 after Governor Gill Marcus said July 7 that Europe’s economic slowdown will affect South Africa’s economic growth, which is “hesitant” and “uneven.” Growth “moderated somewhat” in the second quarter and many South Africans still face hardships, Finance Minister Pravin Gordhan said the next day.

“Marcus’s comments were fairly dovish and that’s causing the market to price in the chance of a rate cut,” said George Glynos, managing director of Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions in Johannesburg. “Inflation continues to surprise on the downside.”

Slowing inflation has given the Reserve Bank scope to reduce its key rate seven times since December 2008 to foster a recovery after the economy fell into its first recession in 17 years in 2009. Policy makers unexpectedly cut the rate by 50 basis points to 6.5 percent on March 25, the lowest since the repurchase, or repo, rate was first introduced.

Inflation eased to a four-year low of 4.6 percent in May, helped by the rand’s 24 percent rally against the dollar since the start of last year and an improved corn crop that made the staple food more affordable. The central bank targets an inflation rate between 3 and 6 percent.

The rand strengthened 0.8 percent versus the dollar to 7.5571. Against the euro, the rand gained 0.2 percent to 9.5697.

To contact the reporter on this story: Garth Theunissen in Johannesburg

To contact the editor responsible for this story: Gavin Serkin at

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