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Rand Weakens 2nd Day as Yields Rise Amid Slowing Credit Growth

South Africa’s rand declined for a second day and bonds fell, driving yields to the highest in a month, as credit growth slowed and before data this week that may show the trade deficit this year is widening.

Growth in borrowing by households and companies fell for a second month to 8.9 percent in June from 9.1 percent, adding to evidence of a slowdown in Africa’s biggest economy. The nation posted a 15th consecutive monthly trade deficit in June, a report may show on Wednesday, bringing the cumulative shortfall this year to 78.4 billion rand ($8 billion), compared with 51 billion rand in the year-earlier period.

“Most important from a currency-market perspective are the trade numbers” which “carry the greatest potential shock risk,” Bruce Donald, a strategist at Standard Bank Group Ltd., said in e-mailed comments. “Trade numbers available thus far in the second quarter do not paint a promising picture for current-account performance.”

South Africa’s currency depreciated 0.7 percent to 9.8340 per dollar by 4:15 p.m. in Johannesburg. Yields on benchmark 7.75 percent bonds due February 2023 climbed five basis points, or 0.05 percentage point, to 7.94 percent, the highest on a closing basis since June 25.

The trade deficit narrowed to 8.9 billion rand in June from 11 billion rand the previous month, the data will show, according to the median estimate of 10 economists in a Bloomberg survey. The deficit was 15.9 billion rand in April. A widening trade deficit puts pressure on the current account, undermining the currency, which has weakened 14 percent against the dollar this year.

Federal Reserve

The Reserve Bank has kept the benchmark repurchase rate at 5 percent for a year as a decline in the rand and rising fuel prices pressure inflation, limiting the room to cut interest rates to stimulate the economy, forecast to grow 2 percent this year. Growth in consumer spending in the first quarter eased to the slowest pace since the 2009 recession.

Policy decisions this week by the U.S. Federal Reserve, the Bank of England and the European Central Bank may roil markets, said John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg. The Fed’s Open Market Committee, which has said it may start paring stimulus should the economy meet the central bank’s forecasts, convenes tomorrow.

“There is large two-way risk to the rand in a data- and event-filled week, so expect high volatility,” Cairns said in an e-mail. “No major policy changes are expected but the markets are still looking for direction on future policy from all three. The most important of the lot is obviously the Fed, where guidance is expected” on the timing and extent of tapering, he said.

Foreign investors sold a net 1.12 billion rand of South African bonds and 833 million rand of equities on July 26, bringing outflows for last week to 1.55 billion rand, according to JSE Ltd. data.

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