Rand Declines First Day in Four as Yields Fall After CPI Slows

South Africa’s rand weakened for the first time in four days and bonds gained after inflation unexpectedly slowed in June, adding to speculation that the central bank will leave borrowing costs at a 30-year low.

The inflation rate declined to 5.5 percent in June from 5.6 percent in May. The median estimate in a Bloomberg survey of 20 economists was for an increase to 5.8 percent. While the bank may not preemptively raise borrowing costs to curb inflation, price increases are preventing it from stimulating an economy expanding at the slowest pace since the 2009 recession, South African Reserve Bank Governor Gill Marcus said last week after leaving the benchmark rate unchanged.

“This will certainly ease any concern about a rate hike,” Kevin Lings, chief economist at Stanlib Asset Management Ltd., said by phone from Johannesburg. “The SARB can comfortably leave rates where they are and focus on growth.”

South Africa’s currency depreciated 0.2 percent to 9.7053 per dollar as of 3:53 p.m. in Johannesburg, rebounding from yesterday’s close at the strongest level in almost two months. Yields on benchmark 10.5 percent bonds due December 2026 fell three basis points, or 0.03 percentage point, to 7.99 percent.

The central bank forecast that inflation will breach the 3 percent to 6 percent target band this quarter. In June, prices rose 0.3 percent. The rand has weakened 13 percent against the dollar this year, the worst performer among 24 emerging-market currencies tracked by Bloomberg.

China Data

Forward-rate agreements starting in 12 months dropped nine basis points, or 0.09 percentage point, to 5.98 percent as investors pared bets on an interest-rate increase within the next year.

The rand declined earlier in the day after an unexpected drop in manufacturing in China, the biggest buyer of South African raw materials. The Asian nation accounted for 14 percent of exports in the five months through May, according to the South African Revenue Service. China’s manufacturing contracted faster in July, signaling a deepening slowdown in the world’s second-largest economy, according to an initial purchasing managers index compiled by HSBC Holdings Plc and Markit Economics.

“The weak Chinese PMI figure has put commodities and commodity and emerging-market currencies under some pressure,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments.

South Africa’s currency stayed weaker after a preliminary index of U.S. manufacturing increased more than forecast in July, reigniting concern the Federal Reserve will start cutting back monetary stimulus as the world’s biggest economy recovers.

The Markit Economics preliminary index increased to 53.2 in July from a final reading of 51.9 a month earlier, the London-based group said today. The median estimate of economists in a Bloomberg survey was 52.6.

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