South Africa’s rand gained after Reserve Bank Governor Gill Marcus said investors shouldn’t assume the central bank will automatically cut rates to boost growth.
The rand advanced as much as 0.3 percent, and traded 0.1 percent stronger at 8.6667 per dollar as of 3:46 p.m. in Johannesburg, reversing an earlier decline of 0.3 percent. Yields on 13.5 percent bonds due September 2015 were unchanged at 5.48 percent.
Policy makers remain ready to act in “whatever way is necessary” as they weigh inflation risks against weaker economic growth, Marcus said in her first interview with Bloomberg TV at her offices in Pretoria, the capital, yesterday. The bank’s primary responsibility is to control inflation, she said. Inflation accelerated for a second month to 5.5 percent in September. Lower rates would erode the rand’s yield advantage over the dollar, damping demand for the South African currency.
“Expectations for a rate cut are certainly being pared back,” Mohammed Nalla, head of strategic research at Nedbank Capital, a unit of Nedbank Group Ltd., said by phone from Johannesburg. “Our base case is for rates to stay flat for longer.”
Forward-rate agreements starting in a year, used to speculate on interest rates, climbed five basis points to 5.10 percent, the highest since Aug. 18. Two-year interest-rate swaps, used to lock in borrowing costs, rose four basis points to 5.16 percent, indicating that traders are pricing in a rate increase in the next two years.
The rand is also being boosted by higher commodity prices after a purchasing managers’ index showed China’s manufacturing industry expanded last month. Standard & Poor’s GSCI Index advanced for a second day as the prices of metals, including copper, rose.
China is the biggest buyer of South African raw materials. Metals and other commodities account for 45 percent of the nation’s exports, according to government data.
“The currency should find some support from” the increase in China’s PMI, John Cairns and Josina Solomons, currency strategists at Rand Merchant Bank in Johannesburg, said in e-mailed comments.