By Robert Brand April 19 (Bloomberg) -- The rand strengthened against the dollar after a central bank official said food prices posed “significant upside risks” for inflation, fuelling speculation the bank may raise borrowing costs as soon as July. The currency advanced as much as 0.8 percent to 6.8084 per dollar, and traded 0.5 percent stronger at 6.8284 as of 3:43 p.m. in Johannesburg. It was little changed at 9.7749 per euro after advancing as much as 0.6 percent to 9.7135 in earlier trading. Data show an “accelerating trend” in food prices, Reserve Bank Deputy Governor Daniel Mminele said in a speech in Washington on April 16, published on the Pretoria-based central bank’s website today. Second-round inflation, where increases in fuel and commodity prices drive up prices of other goods, would “need to be monitored very closely,” he said. The bank has left its benchmark repurchase rate at 5.5 percent, a 30-year low, since November. “The bank will not be soft on signs of second-round pressures, and will start a process of normalizing the repo rate in the third quarter,” Johannesburg-based Citibank NA analysts Leon Myburgh and Coura Fall wrote in a research note. The Pretoria-based government statistics agency will report tomorrow that the consumer price index in Africa’s biggest economy probably rose 4 percent in March from a year earlier, compared with 3.7 percent in February, according to the median estimate of 21 economists surveyed by Bloomberg. The rate may increase to close to the upper limit of the central bank’s 3 to 6 percent target range, Myburgh and Fall wrote. Higher interest rates would increase the carry-trade appeal of rand assets. In the carry trade, investors borrow in the currency of nations with relatively low interest rates, and invest the proceeds in high-yielding assets. The rand pared earlier gains against the euro after a report showed German manufacturing growth unexpectedly accelerated, adding to speculation that the European Central bank will raise interest rates further. The euro gained against the dollar and yen after the report. Bonds rallied. The 13.5 percent notes due 2015 added 15 cents to 121.25 rand, cutting the yield five basis points, or 0.05 percentage point, to 7.69 percent. The 6.75 percent bonds due 2021 gained 24 cents to 88.22 rand, driving the yield 4 basis points lower to 8.53 percent. --Editors: Ana Monteiro, John Kohut. 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

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