Rand falls after CPI data, stocks rise

South Africa’s rand weakened on Wednesday after data showed consumer price inflation rose in July but not by enough to dampen expectations of further monetary policy easing.

At 1500 GMT, the rand traded at R16.90 versus the US dollar, 0.45% weaker than its previous close.

South Africa’s headline consumer price inflation quickened to 3.2% year-on-year in July from 2.2% in June. Market expectations were for a 3.1% rise, well within the central bank’s target of 3-6%.

“We think that the headline rate will hover around 3%…in the coming months,” said Virág Fórizs, Africa Economist at Capital Economics.

“While policymakers sounded less dovish at their July meeting, if we’re right on the inflation outlook and the economic recovery being weaker than the Reserve Bank currently expects, further easing seems likely.”

Demand for the rand and domestic bonds this year has largely been supported by the elevated yield on offer due to high interest rates compared to developed markets.

Lower rates would diminish the currency’s carry-trade appeal.

South Africa’s central bank has cut interest rates by 300 basis points since the start of the year in response to fading price pressures and a weak economic outlook because of the Covid-19 pandemic. The repo rate now stands at 3.5%.

Stocks rose in line with global markets which benefited from improved risk sentiment about US-China trade and expectations of ample central bank stimulus before a key speech by the US Federal Reserve chairman.

The Johannesburg Stock Exchange’s Top 40 index closed 0.94% higher at 52,257 points and the All-share index gained 0.84% to 56,572 points.

However, Nedbank fell 5.68% to R105.75 after reporting a 69.5% drop in half-year profits.

Government bonds weakened, with the yield on the 2030 paper 3.5 basis points higher at 9.325%.