Rates Outlook Boosts Rand Most Among Emerging-Market Currencies

The rand advanced the most among emerging-market currencies, reversing an earlier decline, on expectation the central bank will leave its key interest rate unchanged this week, maintaining the rand’s yield advantage over the dollar.

South Africa’s currency gained as much as 0.4 percent, paring the increase to 0.3 percent at 9.1559 per dollar by 5:18 p.m. in Johannesburg, one of only four emerging-market currencies that gained out of 25 monitored by Bloomberg. The rand depreciated 1 percent last week. Yields on benchmark 10.5 percent bonds due December 2026 were added less than one basis point to 7.4 percent.

The South African Reserve Bank will leave its repo rate at 5 percent on March 20, according to all 12 economists in a Bloomberg survey. That compares with the U.S. Federal Funds Rate of 0.25 percent. The extra yield investors receive for investing in 10-year rand bonds rather than U.S. Treasuries widened six basis points today to 488, the most in two weeks.

“Policy makers appear keen to preserve the hook in the bond market for foreign investors,” Bruce Donald, a currency strategist at Standard Bank Group Ltd., said in an e-mailed research note today. “It is perhaps becoming hazardous to position for further real depreciation of the exchange rate.”

Foreign investors bought a net 1.1 billion rand ($120 million) of South African bonds last week, bringing net purchases for the year to 13.5 billion rand. The country needs foreign investment in its stocks and bonds to finance a current-account shortfall of 6.5 percent of gross domestic product.

Cyprus Levy

Outlook on the central bank’s decision reversed the rand’s earlier depreciation in line with stocks and commodities that slumped following an unprecedented levy on Cyprus’ bank savings. The tariff threatened to spark a new round in Europe’s debt crisis and prompted investors to sell riskier assets, while the euro declined the most in three weeks against the dollar. The euro area is South Africa’s biggest regional trading partner.

“The rand is under renewed pressure as the euro tumbles after the Cyprus bailout,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The rand’s multiday fortunes is largely dependent” on the euro’s performance this week, he said.

Emerging-market stocks slumped the most in more than three months and Standard & Poor’s GSCI Index of raw materials tumbled more than 1 percent. South Africa’s benchmark stock index fell to a two-week low, led by declines in shares of commodity exporters including BHP Billiton Ltd. and Anglo American Plc.

Mining and commodities accounted for 53 percent of South Africa’s exports in 2012, according to government data.