Rand Retreats to Three-Week Low as Metal Prices, Stocks Decline

The rand slumped to a three-week low after stocks and commodity prices tumbled as Europe’s creditor countries struggled to bridge divisions over a rescue of Greece, damping demand for riskier assets.

South Africa’s currency retreated as much as 1.5 percent to 7.8799 per dollar, the weakest level since Jan. 26. It traded 0.5 percent down at 7.8385 as of 3:36 p.m. in Johannesburg. Against the euro, it slipped 0.5 percent to 10.1941 per dollar.

Standard & Poor’s GSCI Index of raw materials declined for a second time this week as the prices of metals including copper, nickel and platinum dropped. Commodities account for 64 percent of South Africa’s exports, according to government data for 2011. A decision slated for yesterday on 130 billion euros ($170 billion) of aid to Greece was postponed to Feb. 20, and Luxembourg Prime Minister Jean-Claude Juncker said Europe’s creditor countries are seeking more control over how aid to Greece is spent.

“We are now solidly in a risk-off environment due to Greek concerns,” John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Global markets haven’t taken these concerns very well, with all risky assets taking a hit.”

South Africa’s benchmark stock index dropped for a third day, led by raw materials exporters including Anglo American Plac and BHP Billiton Ltd.

Bonds Decline

South African government bonds declined as the currency’s retreat and stronger-than-expected retail sales growth spurred investors to add to bets interest rates will rise. The yield on 6.75 percent bonds due 2021 climbed seven basis points, or 0.07 percentage point, to 7.91 percent, the highest on a closing basis since Jan. 25.

Retail sales rose 8.7 percent in December, compared with a revised 7.2 percent a month earlier, Pretoria-based Statistics South Africa said yesterday. The median estimate in a Bloomberg survey of 11 economists was 6.5 percent.

“This holds price inflation risks for the economy going in to late 2012 and early 2013,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “As a result, we continue to foresee a pick-up of interest rate expectations going into year-end.”

Three-month forward-rate agreement starting in 12 months added six basis points to 6 percent today, implying investors expect a 50 basis-point rate increase by February next year. South Africa’s central bank has left its benchmark repo rate unchanged at 5.5 percent for the past 18 months.

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