Rand Best Performer as South African Growth Beats Estimates

The rand led gains among emerging-market currencies after a report showed South Africa’s economy expanded at a faster pace in the final three months of last year, beating analysts’ estimates.

South Africa’s currency advanced for a fourth day, climbing as much as 0.9 percent to 8.7801 per dollar, its highest level since Feb. 15. It traded 0.5 percent stronger at 8.8204 by 3:10 p.m. in Johannesburg, the best performance out of more than 20 peers tracked by Bloomberg. Yields on benchmark 10.5 percent bonds due December 2026 rose two basis points, or 0.02 percentage point, to 7.23 percent.

Gross domestic product rose an annualized 2.1 percent, from 1.2 percent in the third quarter, Statistics South Africa said in a report released today in Pretoria, the capital. The median estimate of 20 economists in a Bloomberg survey was 1.7 percent. Growth for the full year slowed to 2.5 percent in 2012, from 3.5 percent a year earlier.

“Things aren’t necessarily as bad as the market expected,” Mohammed Nalla, the head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. “The market had priced in a much more bearish number.”

In January, the Reserve Bank cut its forecast for economic growth this year to 2.6 percent from 2.9 percent. That compares with an estimated expansion of 2.5 percent last year and 3.5 percent in 2011. GDP needs to grow at an average 7 percent a year through 2020 to cut the jobless rate to 14 percent, according to government estimates.

Interest Rate

The Reserve Bank has kept the benchmark repurchase rate at 5 percent since a surprise reduction in July, concerned that a weaker rand and higher wages will push inflation above the 3 percent to 6 percent target band. Lower borrowing costs would reduce the rand’s yield advantage over the dollar.

“A cut in rates in the first quarter remains outside of our baseline,” Peter Attard Montalto, a London-based strategist at Nomura Holdings Inc., said in e-mailed comments. “While today’s print can reinforce some of the short-run rand strength, we remain more genitive into mid-year” as labor disputes continue to plague the mining industry, he added.

South Africa’s currency is the most undervalued out of 34 global currencies and is set for a rebound to 7.80 per dollar by year-end even as the economy faces headwinds, according to HSBC Holdings Plc. The rand is “one of the most attractive currencies” after depreciating 14 percent in the past year, Murat Toprak, the London-based head of emerging-markets currency strategy at HSBC, said in a phone interview yesterday.

“The rand is more or less fairly valued according to our models,” Nalla at Nedbank said. Still, “people are beginning to realize that the rand is not just a one-way bet”, he said.

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