The rand gained, snapping its longest losing streak in a year, after inflation outpaced economist estimates in April, damping expectations of a central-bank interest rate cut this year.
The inflation rate was unchanged at 5.9 percent, Statistics South Africa said. The median estimate in a Bloomberg survey of 19 economists was 5.7 percent. The South African Reserve Bank’s Monetary Policy Committee, which tomorrow announces its latest interest-rate decision, targets inflation at 3 percent to 6 percent.
“Given the rand weakness already in place, this will, of course, add to the market’s nervousness over the extent of the eventual breach of the inflation target,” Razia Khan, the London-based head of Africa economic research at Standard Chartered Plc, said in an e-mailed note. “The key at tomorrow’s MPC press conference is going to be the balance struck between concern about the breach of the inflation target and concern over the slowdown in the South African economy.”
South Africa’s currency gained 0.3 percent to 9.5175 per dollar by 10:49 a.m. in Johannesburg, ending nine days of losses, the longest streak since May 2009. Bonds gained for the first time in nine days after the Bank of Japan pledged to maintain its stimulus program, fueling demand for higher-yielding assets. Yields on benchmark 10.5 percent bonds due December 2026 dropped nine basis points, or 0.09 percentage point, to 6.96 percent.
Forward-rate agreements starting in December rose three basis points to 4.94 percent, the highest since April 26, as investors pared back rate-cut expectations. The contracts are trading 19 basis points below the Johannesburg Interbank Agreed Rate, implying less than a 50 percent chance of a rate cut this year. As recently as May 9, they were pricing in an 80 percent probability of a cut.