Interest rate cut expectations increase

THE RAND declined yesterday and yields dropped the most in a week as expectations of a rate cut grew and as foreign buying of government bonds increased after they were included in a key index.

At 5pm, the rand was bid at R8.3656 to the dollar, 4.49c lower than on Monday. Yields on 6.75 percent notes due 2021 fell the most since September 25.

The decision to hold the benchmark interest rate unchanged last month was not an “easy one”, Reserve Bank governor Gill Marcus said in a speech to the Nordic-South African Business Association in Johannesburg yesterday.

Forward-rate agreements declined six basis points to 4.74 percent yesterday, signalling investors are increasing bets on a reduction in the next six months.

“She [Marcus] has left the door wide open in terms of a cut if the economic backdrop continues to deteriorate,” Nedbank strategic analyst Mohammed Nalla said. “The potential for a cut is certainly rising following the release of weak manufacturing data.”

South Africa’s purchasing managers’ index fell to a threeyear low in September, Kagiso Tiso Holdings said on Monday.

Foreign investors bought R6 billion of South African government bonds on Monday, adding to net purchases of R635 million on Friday as they were included in Citigroup’s World Government Bond index.