South Africa's Rand Rises Against the Dollar, Trades at 7.4813

By Garth Theunissen

July 23 (Bloomberg) -- South Africa's rand strengthened against the dollar for a third day.

The rand gained as much as 0.2 percent to 7.4667 per dollar and traded at 7.4813 by 7:07 a.m. in Johannesburg, from 7.4828 late yesterday. Against the euro, the rand dropped less than 0.1 percent to 11.8163.

South Africa's currency has climbed 9 percent since June 12, when the central bank raised the nation's benchmark interest rate to a 5 1/2-year high of 12 percent. The rand has offered the best carry-trade return against the dollar, euro and yen over that period, according to data compiled by Bloomberg.

The South African Reserve Bank, led by Governor Tito Mboweni, has increased the key rate 10 times since June 2006 to curb inflation that has exceeded its 3 percent to 6 percent target range for 14 straight months. Price growth quickened to an annual 10.9 percent in May, the fastest since November 2002.

South African government bonds were little changed, with the yield on the 13.5 percent security due September 2015 at 9.903 percent, the same as late yesterday. Yields move inversely to bond prices.

In carry trades, investors borrow a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return, earning the spread between the two. They take the risk currency moves will erase their profit.

South Africa's main interest rate is 1,050 basis points above Japan's and 925 basis points higher than Switzerland's.

The rand is the worst performer of the 15 most-actively traded currencies monitored by Bloomberg this year, falling 8.4 percent versus the dollar and 16 percent against the euro.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net