Rand weakens on inflation acceleration and unrest in other emerging economies

The rand weakened for a second day after inflation accelerated more than expected in Africa's biggest economy and as violence in Ukraine and Thailand soured investor sentiment toward emerging markets.

South African consumer prices climbed for a second month to 5.8% in January from 5.4% the month before. The median estimate of 24 economists in a Bloomberg survey was 5.7%. The advance probably won't be enough to prompt a second interest-rate increase from the South African Reserve Bank, which unexpectedly lifted borrowing costs on January 29, according to the Royal Bank of Scotland.

"The Reserve Bank would be reluctant to choke off the little growth that is left in the economy," Abbas Ameli-Renani, a London-based emerging-markets strategist at the lender, said in an email. "The currency, meanwhile, remains vulnerable. South Africa offers the least amount of real yield in the entire emerging-market space."

The rand weakened 0.6% to 10.9450 per dollar by 10:57 am in Johannesburg. Yields on benchmark bonds due December 2026 were little changed at 8.6% after falling four basis points, or 0.04 percentage point, yesterday.

The dollar gained against 15 of 24 emerging-market currencies tracked by Bloomberg after clashes between police and anti-government activists in Kiev left at least 25 people dead. In Bangkok, five people died in clashes between police and protesters. The hryvnia fell to a five-year low while the bhat retreated a second straight day. South African police are probing the death of a man and looting of shops owned by foreigners in a township near Johannesburg.

"Escalating violence in Ukraine and Thailand hasn't helped" emerging-market currencies, John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in a client note. The release of minutes from the Federal Reserve's last policy meeting also poses a risk to the rand, he said.

International investors bought a net R438-million rand of South African bonds yesterday, paring outflows this year to R17.9-billion, according to Johannesburg Stock Exchange data. – Bloomberg

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