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Rand Weakens 1st Day in Four as S. African Inflation Accelerates

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Sept. 18 (Bloomberg) -- The rand fell for the first time in four days after South Africa’s inflation rate rose to a four-year high and as investors awaited Federal Reserve direction on stimulus that drove demand for emerging-market assets.

Inflation in Africa’s biggest economy accelerated a second month to 6.4 percent in August, meeting economists’ estimates, from 6.3 percent in July. The U.S. central bank is set to taper monthly asset purchases to $80 billion from $85 billion, according to 33 of 64 economists surveyed by Bloomberg.

“The Fed will probably decide to ease off the accelerator that has been flat to the floor since the crisis,” John Cairns, a currency strategist at FirstRand Ltd.’s Rand Merchant Bank unit, said in an e-mailed note to clients today. An amount of “$10 billion or less in tapering would be positive for the rand, anything more would be negative,” he said.

The rand weakened 0.2 percent to 9.8239 per dollar by 4:19 p.m. in Johannesburg. It’s lost 14 percent this year, making it the second-worst performer among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso. Yields on 10.5 percent rand-denominated government bonds due December 2026 fell two basis points, or 0.02 percentage point, to 8.14 percent.

Inflation breached the Reserve Bank’s 3 percent to 6 percent target for a second month. The central bank will probably keep its benchmark interest rate unchanged at 5 percent tomorrow, according to 20 economists surveyed by Bloomberg. Retail sales grew an annual 2.8 percent in July from a revised 1.4 percent a month earlier, Statistics South Africa said in a separate report. On a monthly basis, sales shrank 0.5 percent.

On Hold

“Despite the upside risks to inflation, the Reserve Bank is unlikely to consider hiking rates given the weakness in the domestic economy,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said in an e-mail. The bank “will probably look to keep interest rates on hold for an extended period,” he said.

South Africa, which has the world’s largest-known platinum and chrome reserves and is the sixth-biggest gold miner, imports about 70 percent of its oil needs, which adds pressure on the inflation rate. The price of the generic contract of Brent crude oil jumped 5.9 percent during August. The rand slid 3.9 percent during the month.

The Fed will leave its benchmark interest rate unchanged at 0.25 percent after a two-day monetary policy meeting that ends today, according to the median estimate of 34 economists surveyed by Bloomberg.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

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

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