Nov. 3 (Bloomberg) -- The rand surged to a three-week high against the euro and gained versus the dollar after the European Central Bank unexpectedly cut its benchmark lending rate.
The rand advanced as much as 2 percent to 10.7718 per euro, the strongest level since Oct. 13, and traded 1.5 percent up at 10.8339 as of 3:15 p.m. in Johannesburg. Against the dollar, South Africa’s currency appreciated 1.5 percent to 7.8732, a second day of gains.
ECB officials, meeting under the presidency of Mario Draghi for the first time, cut the benchmark interest rate by 25 basis points to 1.25 percent, wrong-footing 51 of 55 economists in a Bloomberg News survey. The benchmark repo rate for the South African Reserve Bank, which meets next week, is 5.5 percent.
The ECB decision “is a positive for the rand from a rates-differential perspective,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “We may see some more inflows from Europe.”
The rand retreated as much as 1.2 percent against the dollar earlier today after German and French leaders holding emergency talks on the eve of a Group of 20 summit in Cannes, France, cut off aid to Greece pending a referendum on a bailout. The Greek ballot amounted to a vote on the nation’s future in the currency union, they said.
Prime Minister George Papandreou’s ruling party split over his call for a referendum, calling into question whether he will survive as premier. The Greek leader will resign today and hand over to a coalition government led by former European Central Bank vice-president Lucas Papademos, the BBC reported.
Papandreou won’t resign his post and plans to speak in Parliament in Athens today as scheduled, two officials with the ruling Pasok party said in Athens.
“We are still on the wrong side of the risk line,” Cruikshanks said. “The markets are grasping at straws, but the problem with straws is that they don’t keep you afloat for very long.”
South Africa’s 6.75 percent bonds due 2021 gained for a second day, reversing a decline, with the yield falling two basis points, or 0.02 percentage points, to 7.92 percent.
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