Rand Weakens First Day in Five as Marcus Leaves Rates Unchanged

The rand weakened for the first time in five days and bond yields rose after South Africa’s Reserve Bank left its benchmark rate unchanged and lowered its forecast for growth in Africa’s biggest economy.

The central bank left its repurchase rate at 5 percent for a sixth meeting to help stimulate the economy, buffeted by slowing demand for the nation’s exports. The bank won’t automatically raise rates if inflation quickens, Governor Gill Marcus said. Central banks in Brazil and India have raised rates in recent weeks after their currencies weakened.

“We’re still in a situation where the central bank is reluctant to raise rates while some other emerging-market countries have tightened,” Michael Keenan, a Johannesburg-based currency strategist at Absa Group Ltd., said by phone. “We could see the rand weakening as a result.”

South Africa’s currency retreated 0.9 percent to 9.9102 per dollar as of 5:20 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 rose four basis points, or 0.04 percentage point, to 7.85 percent.

South Africa’s economy expanded at the slowest pace since a 2009 recession in the first quarter amid mining strikes that curbed exports. The economy will grow at 2 percent this year, compared with a previous forecast of 2.4 percent, Marcus said. Inflation will probably average 5.9 percent, she said. The bank’s inflation target range is 3 percent to 6 percent.

More Tolerant

“The downside risk to growth has already resulted in the bank being more tolerant of inflation at the upper end of the target range than would normally have been the case,” Marcus said. “While the upside risks to the inflation outlook reduce the scope for further accommodation, a tightening of the monetary policy stance does not automatically follow.”

In the MPC statement in May, Marcus said the rand tended to overshoot and was undervalued. She didn’t offer similar verbal support for the rand this time, instead acknowledging that capital flows from emerging markets and falling commodity prices were risks for the currency, Keenan said.

Growth in China, the biggest buyer of South African raw materials, may trail forecasts, the International Monetary Fund said today. China’s growth outlook is “clouded” by vulnerabilities in the financial and real-estate sectors, the IMF said in its annual assessment of the world’s second-biggest economy.

“A hard landing in China will weigh heavily on emerging-market growth and hit emerging markets and commodity-related currencies hard,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “The IMF’s warning highlights a downside risk to the rand outlook.”

Moody’s Investors Service affirmed South Africa’s investment-grade credit rating, citing the government’s commitment to fiscal discipline and plans to reduce labor disputes and boost development. It maintained a negative outlook amid prospects for mining, South Africa’s biggest export earner, and increasing pressure on the government to raise spending before next year’s parliamentary elections.

South Africa is rated Baa1, the third-lowest investment-grade level and on par with Mexico, Thailand and Russia.

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