Rand Falls 2nd Day as Dollar Buying Avoided, Manufacturing Slows

Feb. 7 (Bloomberg) -- The rand weakened for a second day as foreign-reserves data showed the central bank refrained from dollar purchases in January and after manufacturing growth slowed to a three-month low in December.

South Africa’s currency depreciated as much as 0.2 percent and traded 0.1 percent lower at 8.9071 per dollar as of 3:34 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December dropped three basis points, or 0.03 percentage point, to 7.31 percent, a third day of declines.

South Africa’s gross foreign-exchange and gold reserves rose 1 percent to $51.2 billion in January as the dollar weakened against currencies including the euro. The data shows the central bank didn’t intervene to support the currency as it slumped to a four-year low against the dollar. The South African Reserve Bank doesn’t target a level for the rand and has said it won’t intervene to strengthen or weaken the currency.

“Results reflected no material foreign-exchange purchases by the central bank over the month,” Bruce Donald, a currency strategist at Standard Bank Group Ltd. in Johannesburg, wrote in e-mailed comments. “The Reserve Bank is currently held back from accumulating foreign exchange reserves not only by the weakness of the currency, but also by the sterilization costs attached to such activity.”

Manufacturing growth slowed to an annual 2 percent in December, from a revised 3.7 percent the month before, boosting chances the Reserve Bank will hold interest rates at the lowest level in more than 30 years, or lower borrowing costs, to stimulate the economy. The median estimate of 12 economists in a Bloomberg survey was for an increase of 2.6 percent.

Repurchase Rate

“Any weakness reflected in the number should be read as interest-rate positive, and could then be interpreted as currency negative,” Donald wrote.

The Reserve Bank held the repurchase rate at 5 percent last month as a weak rand put pressure on inflation, preventing policy makers from offering more stimulus to the economy after a surprise rate cut in July. Africa’s biggest economy expanded 2.5 percent last year, the slowest pace since a recession in 2009, according to the government and central bank estimates.

“Overall economic activity remains generally sluggish,” Nedbank Group Ltd. economists including Johannes Khosa wrote in e-mailed comments. “A deterioration in both the global and domestic economies would increase the chance of another cut.”

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net