The producer inflation data of South Africa has beaten the estimates of the economists and as a result, the Rand, the major South African currency has gained. Apart from that, the currency was also helped by the fact that the monthly trade deficit of South Africa narrowed. The bond yields, on the other hand, experienced the biggest fall in the last 3 weeks.
Rand actually increased by 1.1% against USD and is currently priced at 8.9374 per USD. This marks one of the best performances of today among all the major currencies. Today’s increase has helped the currency to trim its decline to 5.2% on this month, still the biggest decline since last May. The yields on the 10.5% percent bonds which are due by December, 2026, experienced a fall of 9 basis points and are at 7.38% currently. This marks the biggest one-day decline for the yields since 9th January.
The producer price inflation for South Africa, the biggest economy in Africa was unchanged at 5.2% and is less than the estimated 5.5% of the economists. This is expected to stem the pressure on consumer prices and also provide the Central Bank with some room to keep the borrowing costs at a 30-year low. This will help to stimulate the growth in the country, as expected by the analysts. The trade gap of South Africa has also narrowed down to 2.7 billion Rand, from 7.9 billion Rand of last month.
According to Mohammed Nalla, who heads the Strategic Research Department of Nedbank Group, the producer inflation data has been able to pare back the inflation related negativity in bits. Hence, investors are less worried now about inflation and that combined with the narrower trade deficit has helped the Rand. Nalla however commented that trade deficit is a pretty volatile number.
The Reserve Bank of South Africa has set a target for itself to keep consumer inflation between 3% and 6%. The benchmark repurchase rate has been kept at 5% since last July by the same for last 7 months, in an attempt to bolster growth. In last month, consumer price inflation jumped up to a 7-month high of 5.7%. In last year, the trade shortfall was at 117.7 billion Rand, which is 6 times higher than that of 2011. This put immense pressure on the current account of the country.