The rand weakened, trading above 9 per dollar for the first time in three years after debt-cutting efforts for Greece stumbled, damping demand for risky assets, and as South Africa inflation unexpectedly quickened.
The currency retreated as much as 1.9 percent to 9.0092 per dollar, the weakest since April 2009, and traded 1.6 percent down at 8.9790 as of 6:20 p.m. in Johannesburg, the worst performance among major and emerging-market currencies monitored by Bloomberg. Yields on 13.5 percent bonds due September 2015 climbed five basis points, or 0.05 percentage point, to 5.46 percent.
European finance ministers failed to scrape together enough funds to help alleviate Greece’s debt burden as talks broke up in Brussels today. The country’s fiscal woes are rekindling doubts about the future of the euro, which buys a fifth of South Africa’s exports, at a time when slowing exports are putting pressure on South Africa’s balance of payments and growth. The nation recorded its biggest quarterly trade deficit in four years in September after violent strikes at mines cut output.
“There are fundamental reasons why the rand is under a bit of pressure,” Jim Bryson, head of foreign-exchange trading at Rand Merchant Bank in Johannesburg, said by phone. “Uncertainty crept into the rand after the strikes, and it just hasn’t recovered.”
U.S. Federal Reserve Chairman Ben Bernanke said yesterday that an agreement on reducing budget deficits could remove an impediment to growth, while failure to avoid the so-called fiscal cliff would pose a threat to the recovery.
“A combination of fears over the fiscal cliff and failure to reach an agreement on Greece have switched the market tone to risk-off,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments.
Inflation accelerated to 5.6 percent in October from 5.5 percent a month earlier, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 23 economists was 5.4 percent. The central bank’s Monetary Policy Committee, which aims to keep inflation between 3 percent and 6 percent, meets tomorrow to review borrowing costs.
“The Reserve Bank will leave interest rates unchanged,” Annabel Bishop, a Johannesburg-based economist at Investec Ltd., said in e-mailed comments. “Inflation is likely to continue to rise this year”, exceeding the target range “for a significant period in 2013,” she said.
South Africa’s Reserve Bank unexpectedly cut its benchmark repo rate by 50 basis points to 5 percent in July, citing slowing growth. The MPC will leave the rate unchanged tomorrow, according to all 23 economists in a Bloomberg survey.
Two-year interest-rate swaps, used to lock in borrowing costs, climbed eight basis points to 5.09 percent after the inflation data was announced, indicating that investors are pricing in a chance of a rate increase over the next two years.