Rand falls on ‘wider-than-expected’ c/a deficit – worst performing EM currency

By Xola Potelwa

(Bloomberg) — The rand weakened the most against the dollar among emerging market peers after South African’s central bank reported a wider-than-forecast current-account deficit for the fourth quarter.

Rand_notesSouth Africa’s currency fell 1 percent to 15.4109 against the dollar at 11:24 a.m. in Johannesburg, the worst-performer among 31 emerging market and major currencies tracked by Bloomberg. Government bonds halted a two-day rally, with yields on the benchmark government rand-denominated bond due December 2026 rising six basis points to 9.35 percent.

Exports declined in the final quarter of 2015, even as the rand weakened, helping to widen the shortfall on the current account to 5.1 percent of gross domestic product, from 4.3 percent in the third quarter, the South African Reserve Bank said Tuesday. Economists expected a 4.4 percent gap. The trade deficit more than doubled to 57 billion rand ($3.7 billion), while foreign investors sold 300 million rand in local bonds and stocks, compared with inflows of 11.8 billion rand in the third quarter.

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The weaker rand, which has declined 22 percent against the dollar in 12 months, was likely to intensify cost pressures in the economy, the central bank said. Inflation jumped to 6.2 percent in January, the fastest rate in 17 months, the national statistics agency said Feb. 17. That breached the top end of the central bank’s target for the first time since August 2014.

The larger-than-expected gap in the fourth-quarter current account “highlights the country’s external vulnerabilities and means the rand is likely to remain under pressure,” William Jackson, senior emerging market economist at Capital Economics in London, said in a note. “Coming alongside above-target inflation, this adds to the reasons to expect substantial monetary tightening this year.”

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