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Swaps Drop as Rand Curbs Inflation Outlook: Johannesburg Mover

Oct. 11 (Bloomberg) -- South African one-year interest-rate swaps, used to speculate on borrowing costs, dropped to the lowest level in more than two months as the rand stabilizes, easing inflation expectations.

One-year swaps declined two basis points, or 0.02 percentage point, to 5.37 percent by 5:03 p.m. in Johannesburg, the lowest since July 22, according to data compiled by Bloomberg. They declined an eighth day, the longest losing streak since September 2011, signaling that investors are paring bets of higher interest rates over the next 12 months.

“With the rand having remained fairly stable at around 10 for a dollar, and inflation coming in line with expectations and expected to show renewed declines, some of the hiking fears are being priced out,” Carmen Nel, a Cape Town-based fixed-income analyst at Rand Merchant Bank, said by phone today.

The rand’s three-month implied volatility versus the dollar fell 22 basis points to 14.4 percent, the lowest since July 29. Declining volatility indicates that options traders see narrower price swings in the currency in the coming months.

Inflation in Africa’s largest economy is forecast to average 5.9 percent this year, according to central bank estimates and below the monetary policy committee’s upper target of 6 percent. Reserve Bank Governor Gill Marcus has held the key repurchase rate at 5 percent since July 2012, the lowest in 30 years. The rand weakened 0.2 percent to 9.9225 per dollar, halting three days of gains.

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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