The rand reversed its advance against the dollar on speculation the central bank won’t raise interest rates even after consumer inflation quickened more than economists’ expectations in May. South Africa’s currency slipped as much as 0.4 percent to 6.7530 per dollar, and traded at 6.7509 by 11:25 a.m. in Johannesburg. It declined 0.3 percent to 9.7122 per euro. The consumer inflation rate rose 4.6 percent in May, more than the 4.4 percent median forecast of 24 economists in a Bloomberg survey, from 4.2 percent the previous month, the Pretoria-based statistics agency said today. While the Reserve Bank predicts that inflation will breach its 3 percent to 6 percent target range in the first quarter of 2012, it has kept its key interest rate at 5.5 percent this year, arguing price rises are driven by global fuel and food prices. Increasing inflation erodes returns on rand assets. “We believe the Monetary Policy Committee is likely to continue with its wait-and-see policy until there is greater evidence of more generalized inflation,” Carmen Altenkirch, a Johannesburg-based analyst at Nedbank Group Ltd., said in a research note after the release of the inflation data. “We still expect the MPC to delay its first hike until early 2012, as an early interest rate increase would risk curbing the economic recovery.” The MPC is due to announce its next interest-rate decision on July 21. The bank won’t raise rates to curb rising prices caused by global oil and food prices, central bank Chief Economist Monde Mnyande said yesterday. Carry Trade The rand has returned 3 percent in past month in the carry trade, in which investors borrow in currencies of countries with near-zero rates to invest the proceeds in higher-yielding assets. The rand’s carry-trade allure may lessen if South Africa lags behind developed countries in raising rates. Earlier, the rand rallied to its strongest level against the dollar in almost two weeks as optimism Greece will avoid a debt default boosted precious metal prices and investor appetite for riskier assets. Gold and platinum, which account for 20 percent of South Africa’s export earnings, gained for a second day while emerging-market stocks rose after Greek Prime Minister George Papandreou won a parliamentary confidence vote, bolstering his chances of pushing through austerity measures to secure further financial aid. Greece, Metals “Precious metal prices are trending higher and global equity markets are rallying,” Michael Keenan, a Johannesburg- based analyst at Standard Bank Group Ltd., said in a research note. “Therefore, the bias seems in favor of extended rand strength today.” Greece needs to pass the austerity package to ensure it receives a 12 billion-euro ($17.2 billion) payment in July, part of last year’s 110 billion-euro bailout from the European Union and the International Monetary Fund. Bonds declined, erasing earlier gains, on concern rising prices will erode investors’ returns. The 6.75 percent securities due 2021 dropped 9 cents to 89.16 rand, driving the yield up two basis points, or 0.02 percentage point, to 8.40 percent. To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

Source