Johannesburg - South African bonds did not react to
comments on Tuesday around potential negotiations on inflation targeting by new Finance Minister Pravin Gordhan, but an international analyst notes that any such debate could unsettle markets and investors would be watching this issue "extremely closely".
The bond market instead moved on poor sentiment on the rand and supply
concerns.
Gordhan has said that the government is willing to debate economic policies
like inflation targeting, reported Sapa earlier in the day.
While bonds did weaken by eight basis points at the time of the Gordhan
news, this also coincided with news of a badly supported government auction, in
which the cover ratio only measured 1.77 times versus previous measures closer
to four times the allocated amount.
By 16:42 the medium-term R157 was at 8.200% from 8.070% at its previous
close and 8.080% in early morning trade.
"Some role-players in South Africa like Cosatu have raised that question,"
said Gordhan in an interview on SAFM on Tuesday.
"My approach there - and this again [is] within the framework of the spirit
the president [Jacob Zuma] is creating - is that we want to engage, we want to
talk, we want to debate, we want to discuss and we want to have all role-
players."
According to a senior bond market dealer "the market is slightly smarter"
than moving on this.
He explained that if inflation targeting was going to go, then the short
end of the market should have rallied and the long end would have sold off, but
this did not happen.
Emerging markets analyst from Nomura, Peter Attard Montalto, however says
that such debate could unsettle markets and be seen as an explicit move to
accommodate the left.
Investors watching closely
"We however note that officials in the Treasury and Sarb are very much
against any such move and such debates have already happened under Manuel. In
addition we also note that the MPC already has a significant weight on growth
in its deliberations and any explicit qualitative growth consideration would
not effect monetary policy in our view. This is however an issue that we and
investors generally will be watching extremely closely," said Attard Montalto.
Gordhan was appointed finance minister on Sunday by President Jacob Zuma.
Zuma has the support of trade unions and the SA Communist Party, both of
which want the government to end the SA Reserve Bank's policy of inflation
targeting.
Gordhan said economic policies had to react to shifting global developments.
The bond dealer added: "It was also his first interview - we would need
something more solid."
- I-Net Bridge