The rand strengthened for a second day on speculation that Janet Yellen, the nominee for chairman of the Federal Reserve, will maintain monetary stimulus that has fueled appetite for emerging-market bonds and stocks.
Yellen, 67, would succeed Ben S. Bernanke, whose term expires on Jan. 31, putting the world’s most powerful central bank in the hands of a key architect of its unprecedented stimulus program. The rand pared gains after central bank Governor Gill Marcus said South Africa needs to boost foreign-currency reserves to shield the economy against the risk of capital outflows.
As vice-chairman of the Fed, Yellen “has been a big supporter of quantitative easing and is seen as a dove,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Risk assets will welcome her nomination as it signals a high likelihood of continued easy U.S. monetary policy.”
The rand gained 0.3 percent to 9.9714 per dollar as of 3:47 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 rose one basis point, or 0.01 percentage point, to 8.03 percent.
Yellen supported the Fed’s bond-buying programs and was a driving force behind a strategy adopted in 2012 to commit the bank to goals on inflation and unemployment. The Fed has said it will consider curbing its $85 billion of monthly bond purchases if the economy meets growth targets. Minutes of its meeting last month, where Bernanke maintained the stimulus, will be released after the close of South African markets today.
Reserves in Africa’s biggest economy “are low by comparison with our emerging-market peers,” Marcus told lawmakers in Cape Town. “The need to accumulate these reserves has been driven by the need to reduce our vulnerability to sudden large outflows of capital, something that is regarded as a real risk given the policy decisions likely to be taken by the Federal Reserve in near future.”
Foreign investors bought a net 75 million rand ($7.5 million) of South African bonds while selling net 1.03 billion rand of stocks yesterday, bringing net portfolio inflows for the year to 66.5 billion rand, compared with 75.9 billion rand in the corresponding period last year, according to JSE Ltd. data.
Manufacturing growth in Africa’s biggest economy slowed to an annual 1.2 percent in August from 5.4 percent in July, according to the median estimate of 11 analysts in a Bloomberg survey. The data will be released at 1 p.m. tomorrow.