Rand steadies after rally, bonds fall

2012-07-30 09:12

Johannesburg - The rand on Monday was little changed from last week’s close against the dollar, but could be in for a volatile week if European policy leaders fail to meet market expectations of a decisive move to bring stability to the eurozone.

Government bonds eased slightly in early trade, with the yield on the three-year and 14-year benchmarks  each notching up two basis points to 5.41% and 7.265% respectively.

The rand traded at R8.17 by 06:30 GMT, just 0.17% off Friday’s close at R8.1560.

Earlier, the currency firmed slightly and bond yields ticked up after Reserve Bank data showed growth in credit demand by the private sector quickened to 8.72% year/year in June, undermining the case for further interest rate cuts this year. 

The Reserve Bank unexpectedly reduced rates by 50 basis points to 5.0% earlier this month, citing concerns about the effect of a global downturn on Africa’s largest economy.

But further interest rate cuts should not be taken as a given and depend on growth and inflation trends in coming months, central bank Governor Gill Marcus reiterated on Saturday.

The market was cautiously optimistic, but nervous ahead of the European Central Bank’s meeting on Thursday after bank chief Mario Draghi said last week the bank it would do all it could to save the eurozone.

Nagging debt problems in the bloc, a key trading partner for South Africa, have spurred risk aversion in recent months.

“Get ready for another volatile week. If a bloodbath in global markets is to be avoided, the ECB will have to deliver on Thursday,” RMB said in a note.

“In this environment, don’t be surprised if dollar/rand tests and breaks the lower or upper edge of the R8.07/12-R8.55, or even both.”