JOHANNESBURG Aug 22 (Reuters) – South African government
bonds extended their rally on Wednesday after inflation slowed
more than expected in July, while the rand was slightly weaker.
Consumer price inflation declined to 4.9 percent
year-on-year in July, from 5.5 percent in June, Statistics South
Africa said on Wednesday, lower than the 5.2 percent forecast by
economists in a Reuters poll.
The inflation figure, which raised expectations of further
rate cuts, bolstered government bonds, with the yield on the
2015 bond declining to a two-week low of 5.52 percent.
That on the 2021 bond fell to 6.78 percent, its lowest
in more than a week.
“We got better than expected CPI,” said Garth Klintworth,
head of fixed income, currencies and commodities at Absa
Capital. “This reconfirms the possibility of more monetary
policy easing … Bonds (yields) are lower on the back of that.”
South Africa’s Reserve Bank cut its benchmark interest rate
by 50 basis points to a record low of 5 percent in July, citing
fears about the impact of the global economic downturn on
Africa’s largest economy.
The rand was down 0.5 percent at 8.3030 to the dollar at
1631 GMT, reversing the previous session’s gains. It closed at
8.2625 in New York on Tuesday.
“We’re really just trading around flows. There’s no specific
theme that you can point the weakness to,” said Klintworth. “I
think we’re in a broad range of 8.20-8.55.”
The rand’s prospects over the next three months look
promising as global sentiment is likely to improve and as South
Africa reaps the full benefits of its inclusion in Citi’s World
Government Bond Index in October, analysts at Absa Capital said
in a research note.
“We believe the strong portfolio inflows into the SA bond
market in June and July, as well as the subsequent profit-taking
in August, have mirrored the appetite for emerging market bonds
in general,” the note said. “Hence, we believe the portfolio
inflows associated with SA’s inclusion in the WGBI could still
be en route.”
(Reporting by Tosin Sulaiman; editing by Stephen Nisbet)
