The rand slumped to a six-month low, set for its worst month since September, and bond yields fell as investors added to bets the central bank will ease monetary policy as Europe’s debt crisis weighs on the global economy.
South Africa’s currency declined as much as 0.5 percent to 8.5808 per dollar, its weakest level since Nov. 25. It traded 0.4 percent down at 8.5657 as of 4 p.m. in Johannesburg, bringing its decline this month to 9.2 percent, the most out of 16 major currencies monitored by Bloomberg. Yields on the nation’s 13.5 percent bonds due 2015 dropped four basis points, or 0.04 percentage point, to 6.39 percent.
The number of Americans applying for unemployment benefits increased last week, the world’s biggest economy grew more slowly in the first quarter than previously estimated, and business activity expanded at a slower pace in May, reports showed today. South African producer-price inflation slowed to a one-year low in April, supporting the view the central bank may keep interest rates unchanged or ease policy amid signs that Europe’s debt crisis is threatening global economic growth.
“The market just keeps adding up negative factors,” Ian Cruickshanks, head of strategic research at Nedbank Capital, a unit of Nedbank Group Ltd., said by phone from Johannesburg. “To be short of the dollar in the current circumstances is to take your financial life in your hands.”
Producer Price Inflation
The cost of goods leaving factories and mines increased 6.6 percent compared with 7.2 percent in March, Pretoria-based Statistics South Africa said on its website today. The median estimate of 14 economists surveyed by Bloomberg was 6.9 percent.
“The PPI reading confirms the likelihood that South African interest rates can simply remain on hold for an extended period, while the Reserve Bank monitors the risks to inflation and growth,” Kevin Lings, an economist at Stanlib Asset Management Ltd. in Johannesburg, said in e-mailed comments.
Forward-rate agreements starting in December dropped eight basis points today to 5.40 percent, the lowest since November. The yield is 20 basis points lower than the three-month Johannesburg Interbank Agreed Rate, implying traders see a 40 percent probability of a 50 basis-point rate cut this year, according to data compiled by Bloomberg.
The Reserve Bank has kept its key policy rate unchanged for 18 months at 5.5 percent, the lowest level in more three decades, to help support the economy’s recovery. Slower growth in factory-gate prices may ease pressure on consumer inflation, which accelerated to 6.1 percent in April.
The central bank’s target is to keep consumer-price inflation within a range of 3 percent to 6 percent. The inflation rate probably peaked in the first quarter at an average of 6.1 percent and may drop into the target band after June, Reserve Bank Governor Gill Marcus said on May 24.
“With commodity prices falling, equity markets under pressure and risk aversion on the rise, the rand seems primed for further weakness,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “In the current environment, any bad news is likely to aggravate the rand’s demise.”
Commodities are poised for the biggest monthly loss in more than three years. South Africa has the world’s biggest reserves of minerals, according to Citigroup Inc. Raw materials account for 45 percent of the nation’s exports. The MSCI Emerging Markets stock index fell for a second day.
The rand’s three-month implied volatility against the dollar rose to 20.07 percent today, the highest since January, as options traders anticipate wider swings in the currency. The rand’s implied volatility is the highest out of 16 major currencies monitored by Bloomberg.