* Bonds yields hit new lows, forward rate agreements price
in more cuts
* Rand weakest in group of emerging currencies vs dollar
JOHANNESBURG, July 19 (Reuters) – South African government
bond yields hit record lows on Thursday while the rand weakened
against the dollar after the central bank unexpectedly cut its
key lending rate and sounded a dovish tone on inflation while
trimming its economic growth forecasts.
The Reserve Bank cut the repo rate by 50 basis points to 5.0
percent, surprising the market after 19 months of no change to
rates. Only two out of 23 economists polled by Reuters had
anticipated the cut.
Commercial banks followed suit and cut their lending rates
to consumers by the same margin to 8.5 percent.
Yields on the front end of the curve extended earlier
declines to record lows after the rate cut and the central
bank’s lower inflation forecasts, widening the yield spread
between the three- and 14-year bonds by 8 basis points.
The rand was the worst performer in a basket of emerging
market currencies trading against the dollar after the
unexpected cut in interest rates underscored a bleak outlook for
global and economic growth.
The unit was down 0.2 percent to 8.1780 to the
dollar at 1620 GMT, recovering from its initial reaction to 8.20
after the rate cut, and off a 8.16 close in New York on
Wednesday.
“This was based not solely on domestic factors but the
condition of the globe. It is in line with what we have seen
from other central banks in terms of combating lower global
growth and assisting with liquidity provision where they can,”
said Garth Klintworth from Absa Capital.
Continued…
