The rally of the rand in recent days will likely continue to lose steam as the market looks out for a decision to cut monthly bond purchases.
The rand declined for the first time in three days, retreating from a five-week high, as Federal Reserve officials start a two-day policy meeting before a report that may show South African inflation is accelerating.
The Federal Open Market Committee (FOMC) will probably decide to cut its monthly bond purchases, which have fuelled demand for high-yielding assets, to $75-billion from $85-billion, according to the median estimate of economists in a Bloomberg News survey on September 6.
South Africa’s inflation rate increased in August above the central bank’s 3% to 6% target range for a second month, a report may show tomorrow.
“The rand remains vulnerable to tougher global funding conditions and the risk to the currency remains skewed towards further weakness,” Theuns de Wet, head of fixed-income research at Rand Merchant Bank in Johannesburg, said in an email. “The market will probably start looking towards the FOMC decision. We would therefore expect the rally of the last few days to start to lose some steam.”
The rand depreciated by 0.3% to 9.8437 per dollar at 10.14am in Johannesburg on Tuesday. Yields on benchmark 10.5% bonds due in December 2026 rose by four basis points, or 0.04 percentage points, to 8.11%. South Africa’s inflation rate likely rose to 6.4% in August from 6.3% a month earlier, according to the median estimate of 21 analysts in a Bloomberg survey.
Rising prices are limiting the South African Reserve Bank’s room to stimulate the economy. The central bank will leave its key repurchase rate unchanged at 5% on September 19, according to the 18 economists surveyed.
Foreign investors bought a net R2.28-billion of South African bonds yesterday, the most in a day since July 30, according to JSE data. Non-residents bought R119-million of equities, the data show. – Bloomberg