October 20, 2003

By Reuters

Johannesburg - The rand sank as much as 4 percent on Friday to its lowest levels in almost a month, prompting speculation that its high-yield appeal had perhaps been diminished by Thursday's 150 basis point rate cut.

Dealers reported that most of the action was coming out of London but local exporters were halting or slowing the downward spiral as they used the opportunity to get the best value they had seen in weeks for their dollars.

By 5pm the rand was at R7.1613 to the dollar compared with R7 at close of trade in Johannesburg on Thursday. It had fallen to R7.30 at one point, a loss on the day of about 4 percent.

Its gains on the year now stand at close to 19 percent.

The central bank has trimmed rates by 500 basis points since June in the face of falling inflation, bringing prime to 12 percent, its lowest in over 16 years.  

But the rand has remained stubbornly strong in the face of this aggressive unwinding, not least because rates remain high by global standards and so have an appeal to foreign investors.

Friday's sharp moves may suggest the tide is about to turn, though it could also be a temporary reaction to Thursday's cut, which was bigger than expected.

Bonds gave up some of their big Thursday gains as the market caught its breath, with some of the weakness attributable to the the softer rand. By 5pm the yield on the short-dated R150 bond was up 12 basis points at 8.17 percent after plunging as much as 30 basis points on Thursday. The yield on the R153 was also up 16 basis points to 8.17 percent.