The rand advanced the most in two weeks after South Africa’s monthly trade deficit narrowed more than economists expected in February. Bonds gained as credit growth and producer inflation slowed.
South Africa’s currency strengthened as much as 0.8 percent, the most since March 14, and traded 0.6 percent up at 9.2070 per dollar as of 3:38 p.m. in Johannesburg. The rand is still down 8 percent this quarter, the worst performer among emerging-market peers tracked by Bloomberg. Yields on benchmark 10.5 percent bonds due December 2026 dropped nine basis points, or 0.09 percentage point, to 7.39 percent, paring the rise this year to 10 basis points.
South Africa’s trade shortfall eased to 9.5 billion rand ($1 billion) in February from a record 24.5 billion the month before. The median estimate of economists in a Bloomberg survey was for a deficit of 12.5 billion rand. A narrowing deficit eases pressure on the current-account gap, which reached 6.5 percent of gross domestic product in the fourth quarter, close to a four-year high, as mining strikes and slowing growth in Europe cut exports. The shortfall is undermining the rand and adding to price pressures in Africa’s biggest economy.
“Although the lower deficit is supportive of the rand temporarily, this is only one month’s measure and historically the trade data is very volatile,” Johann Els, senior economist at Old Mutual Investment Group, South Africa’s biggest private investor, said in an e-mailed note. “We are keeping a very close eye on the trends of the trade and current account deficits at the moment, as these are key drivers of the weaker rand and rising inflation.”
Growth in borrowing by households and companies eased to 7.9 percent in February from 8.6 percent the month before, less than the 8 percent median estimate of economists in a Bloomberg survey. Factory-gate prices rose 5.4 percent in the month, from 5.8 percent.
Signs of slowing price pressures may give the central bank room to hold interest rates at a 35-year low for longer, according to Peter Worthington, an emerging-markets analyst at Absa Group Ltd. in Johannesburg.
“Our view is that the Reserve Bank will sit tight until the third quarter of 2014, and there’s nothing in today’s data to change that view,” Worthington said by phone.
Forward-rate agreements starting in 12 months, used to speculate on interest rates, dropped six basis points to 5.3 percent as traders pared expectations of a rate cut in the coming year.