/ 11 February 2012

Reserve Bank speculation spooks rand

Reserve Bank Speculation Spooks Rand

The rand tumbled over 2% against the dollar on Friday after the South African Reserve Bank signaled there would be an important weekend announcement, sparking panic selling of the rand and spooking bond traders into pulling their prices.

The rand fell 2.6% against the dollar to a nine-day low of 7.7803, off a close of 7.5845 in New York on Thursday.

But it firmed back to 7.7390 in later trade as the market was calmed by talk that the central bank announcement would not be alarming.

The local unit had taken a weaker tone for most of the day as a Greece bailout deal was further delayed, prompting investors to dump risky assets.

It extended losses sharply after the central bank signaled a Saturday announcement of “national importance” by President Jacob Zuma with Finance Minister Pravin Gordhan and Reserve Bank governor Gill Marcus.

“Once the rumours started to fly about the central bank we saw some panic buying, offshore banks especially were nervous about that, buying dollars,” a local currency dealer said.

Low exposure
Most bond traders immediately stopped dealing, not wanting to expose themselves to the uncertainties.

Yields ended little changed from Thursday’s close as the market thinned and dealers tried to position for Saturday’s announcement.

The yield on the 2015 bond ended up 2 basis points at 6.64% and the 2026 issue was up 2.5 basis points at 8.31%.

“No one is prepared to make a price given all the uncertainty. As soon as it was announced, traders pulled their prices immediately,” said Richard Farber of WWC Securities.

But the Mail & Guardian has heard from reliable sources that the governor is not exiting the bank and that the imminent announcement is more of a “celebratory” nature relating to the importance of the date.

Market talk is that the central bank is minting a new coin in honour of former president Nelson Mandela to commemorate the anniversary of his release from prison on February 11, 1990. — Reuters