Rand Best Performer as PPI Beats Expectations; Yields Fall

The rand led gains for major currencies after South African producer inflation data beat economists’ estimates and the nation’s monthly trade deficit narrowed. Bond yields fell the most in three weeks.

The currency of Africa’s largest economy advanced 1.1 percent to 8.9374 a dollar as of 3:39 p.m. in Johannesburg, the best performance out of 16 major currencies monitored by Bloomberg. That trimmed its decline this month to 5.2 percent, still the most since May. Yields on 10.5 percent bonds due December 2026 fell nine basis points, or 0.09 percentage point, to 7.38 percent, the biggest one-day decline since Jan. 9.

Producer-price inflation in Africa’s biggest economy was unchanged at 5.2 percent, less than the 5.5 percent estimate of economists in a Bloomberg survey. That may stem pressure on consumer prices and give the central bank room to leave borrowing costs at a 30-year low to stimulate growth. The nation’s trade gap narrowed to 2.7 billion rand ($302 million) in December, from 7.9 billion rand the previous month.

“The producer inflation number has pared back some of the negativity about inflation,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. “Market participants are probably a bit less worried about inflation now. The narrower trade deficit has also helped, although that’s a very volatile number.”

The Reserve Bank, which targets consumer inflation of between 3 percent and 6 percent, has held the benchmark repurchase rate at 5 percent since July to bolster growth in Africa’s largest economy. Consumer-price inflation accelerated to a seven-month high of 5.7 percent in December and is set to peak at 6.1 percent in the third quarter, Reserve Bank Governor Gill Marcus said on Jan. 24.

Trade Gap

South Africa’s trade shortfall for 2012 was 117.7 billion rand, more than six-fold larger than the previous year. That put pressure on the current account, the broadest measure of trade in goods and services, contributing to the rand’s slump.

The rand also benefited as investors bet the decline, which reached a four-year low on Jan. 29, had gone too far, Michael Keenan, a currency strategist at Absa Group Ltd. in Johannesburg, said by phone.

“The currency has weakened considerably, and at these levels you would expect to see some short-covering,” Keenan said, referring to traders who sold rand they didn’t own, anticipating that it would weaken, and have to buy the currency to deliver on the transactions.

Before it's here, it's on the Bloomberg Terminal.