South African Rand Posts Weekly Gain as Gold Prices Rebound

By Vernon Wessels and Garth Theunissen

Dec. 13 (Bloomberg) -- South Africa’s rand posted a weekly advance against the dollar buoyed by rising gold and platinum prices and a rebound in the country’s benchmark stock index.

Gold, South Africa’s biggest export, climbed 9 percent an ounce this week while the FTSE/JSE All Share Index increased 11 percent. The currency rose even as the Pretoria-based South African Reserve Bank cut its main interest rate for the first time in more than 3 1/2 years on signs that growth and inflation in Africa’s biggest economy are slowing. The bank reduced the repurchase rate by a half point to 11.5 percent on Dec. 11.

“The equity inflows would’ve helped the rand,” said Ian Martin, a senior currency trader at FirstRand Ltd.’s Rand Merchant Bank. “The economy has got the potential to grow.”

The rand strengthened 1 percent this past week to 10.2100 per dollar late yesterday in Johannesburg. Against the euro, it dropped 3.8 percent to 13.6042.

Policy makers, led by Governor Tito Mboweni, lowered borrowing costs as central banks around the world cut them to help boost economic growth amid the worst financial crisis since the Great Depression. Growth in Africa’s biggest economy slowed to an annualized 0.2 percent in the third quarter, from 5.1 percent in the previous three months as six rate increases since last year pushed the retail industry into recession.

Manufacturing, which accounts for 16 percent of the $278 billion economy, dropped for the first time in seven months, declining an annual 1.6 percent in October, Pretoria-based Statistics South Africa said on Dec. 9.

“Lots of folks out there are in distress,” Mboweni said in a televised speech from Pretoria yesterday. “One can’t conduct monetary policy as though you are an island, unaffected by what is happening on the mainland.”

Target Range

Inflation will probably drop within the 3 percent to 6 percent target range by the third quarter of next year, averaging 6.2 percent for 2009, Mboweni added. Consumer-price inflation slowed to 12.4 percent in October, from 13 percent the previous month and a record 13.6 percent in August. An almost 70 percent drop in oil prices from a July record eased concern over inflation, the Reserve Bank said in its Quarterly Bulletin.

Gold had the biggest gain in three months to trade at $823.54 an ounce as the dollar declined 3.6 percent against a weighted basket of six major currencies, boosting the appeal of the precious metal as an alternative asset.

“The dollar had a sell-off this week,” RMB’s Martin said. “Trading in the rand is thin and the currency is taking most of its direction from what is happening with the dollar.”

Government bonds advanced this past week, with the yield on the benchmark 13.5 percent security due September 2015 dropping 38 basis points to 7.71 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, lost 16.5 basis points to 7.78 percent. Yields move inversely to bond prices.

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