South Africa Yields Decline as Inflation Rate Falls; Rand Drops

South African bond yields slid the most in almost three weeks after a report showed the nation’s inflation rate dropped to a five-month low. The rand weakened, erasing gains earlier today.

Yields on benchmark 10.5 percent bonds due December 2026 fell as much as 11 basis points and were 6 basis points down at 7.217 percent as of 5:30 p.m. in Johannesburg, the most on a closing basis since Jan. 31. The currency of Africa’s biggest economy fell 0.2 percent to 8.8750 per dollar, paring an earlier advance of as much as 0.3 percent.

Inflation slowed to 5.4 percent in January from 5.7 percent in December, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 19 economists was 5.7 percent. Prices rose 0.3 percent in the month.

“The lower CPI data this morning has given the local bond market a small boost,” Manik Narain, an emerging-markets strategist at UBS AG in London, said by e-mail. “Investors are waiting for the budget next week for clearer direction on policy.”

Finance Minister Pravin Gordhan may struggle to keep pay demands under control and meet his budget targets after the government raised wages by more than double the inflation rate in the past five years. Gordhan will give his budget speech on Feb. 27.

The Reserve Bank has held its benchmark repurchase rate at 5 percent since a surprise cut in July. The bank’s mandate is to keep inflation within a range of 3 percent to 6 percent.

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