Rand weakens as yields rise

FMCG SUPPLIER NEWS

IOL Business/ Bloomberg - Jul 30th, 08:33

Johannesburg - South Africa’s rand declined for a second day and bonds fell, driving yields to the highest in a month, as credit growth slowed and before data this week that may show the trade deficit this year is widening. 

Growth in borrowing by households and companies fell for a second month to 8.9 percent in June from 9.1 percent, adding to evidence of a slowdown in Africa’s biggest economy. The nation posted a 15th consecutive monthly trade deficit in June, a report may show on Wednesday, bringing the cumulative shortfall this year to R78.4-billion ($8-billion), compared with R51-billion in the year-earlier period.

“Most important from a currency-market perspective are the trade numbers” which “carry the greatest potential shock risk,” Bruce Donald, a strategist at Standard Bank Group Limited, said in emailed comments. “Trade numbers available thus far in the second quarter do not paint a promising picture for current-account performance.”

South Africa’s currency depreciated 0.5 percent to 9.8210 per dollar as of 10.18am in Johannesburg. Yields on benchmark 7.75 percent bonds due February 2023 climbed five basis points, or 0.05 percentage point, to 7.94 percent, the highest on a closing basis since June 25.

The trade deficit narrowed to 8.9 billion rand in June from 11 billion rand the previous month, the data will show, according to the median estimate of 10 economists in a Bloomberg survey. A widening trade deficit puts pressure on the current account, undermining the currency, which has weakened 14 percent against the dollar this year.

The Reserve Bank has kept the benchmark repurchase rate at 5 percent for a year as a decline in the rand and rising fuel prices pressure inflation, limiting the room to cut interest rates to stimulate the economy, forecast to grow 2 percent this year. Consumer spending in the first quarter eased to the slowest pace since the 2009 recession.

Foreign investors sold a net R1.12-billion of South African bonds and R833-million of equities on July 26, bringing outflows for the week to R1.55-billion, according to JSE data. - Bloomberg © Independent On-line 2013. All rights reserved.