Rand Gains Versus Euro as ECB Considers Negative Rates

The rand strengthened the most against the euro in more than two months as the European Central Bank was said to consider negative deposit rates. South African bond yields fell after inflation slowed more than estimated.

The ECB is considering a smaller-than-normal cut in the deposit rate if officials decide to take it negative for the first time, according to two people with knowledge of the debate. South Africa’s consumer price index dropped to 5.5 percent last month from 6 percent in September, the government’s statistics agency said today. The median estimate of 23 economists in a Bloomberg survey was 5.7 percent.

The rand gained 1.7 percent to 13.5531 against the euro, the currency of South Africa’s biggest regional trading partner, as of 6:19 p.m. in Johannesburg. That’s the biggest gain on a closing basis since Sept. 6. It advanced 1.1 percent to 10.0699 per dollar. Yields on bonds due December 2026 dropped five basis points, or 0.05 percentage point, to 8.13 percent. The Reserve Bank will leave its policy rate unchanged at 5 percent tomorrow, according to all 22 analysts surveyed by Bloomberg.

“The CPI figure is bringing some positivity back into the market” after a selloff yesterday on concern that a power shortage will lead to blackouts, Thando Vokwana, a fixed-income trader at FirstRand Ltd., said by phone from Johannesburg. “The focus tomorrow will be on whether the Monetary Policy Committee statement shifts from a hawkish tone to a more dovish tone.”

The rand fell the most since Nov. 8 yesterday after Eskom Holdings SOC Ltd., the state-owned electricity company, declared a power emergency and asked its biggest customers to cut back use by at least 10 percent to avoid blackouts.

Foreign investors bought a net 282 million rand ($28 million) of South African bonds yesterday, a third day of inflows, trimming net sales this month to 6.94 billion rand, according to JSE Ltd. data.