South African Rand Weakens Against Dollar, Trades at 7.2443

By Janice Kew

Aug. 4 (Bloomberg) -- South Africa's rand weakened against the U.S. dollar.

The rand traded at 7.2443 per dollar as of 7:40 a.m. in Johannesburg, from 7.2200 on Aug. 1.

The currency was the best performer in the world against the dollar and euro in July and last week had its biggest weekly gain in more than five years on speculation accelerating inflation will prompt the central bank to lift interest rates.

Consumer-price growth quickened to 11.6 percent in June, Statistics South Africa said July 30. Producer-price inflation accelerated to 16.8 percent from 16.4 percent in May, the government agency said Aug. 1.

Rising interest rates boost the rand by stoking demand for the currency in the so-called carry trade, in which investors borrow currencies with lower returns such as the Japanese yen or Swiss franc to buy higher-yielding ones elsewhere, earning the spread between the two.

South Africa's currency has gained 11 percent against the dollar since June 12, when the Reserve Bank raised its benchmark rate a half-point to 12 percent to curb inflation. It has offered the best carry-trade return against the U.S. currency, euro and yen over that time, according to data compiled by Bloomberg.

South Africa's main interest rate is 1,150 basis points above that of Japan and 925 basis points higher than in Switzerland. The central bank next meets to discuss interest rates on Aug. 14.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew1@bloomberg.net