January 27, 2005

Johannesburg - Government bonds firmed yesterday after December consumer inflation data came in below expectations, fuelling hopes of an interest rate cut in February, traders said.

But the rand was steady for much of the session, eyeing the euro's moves against the dollar.

The yield on the most-traded R194 rallied to an intraday best bid of 7.6 percent, but later softened. By 5pm it was bid at 7.615 percent, still 3 basis points ahead of its level 24 hours earlier.

The R153 strengthened 4 basis points to 7.86 percent bid.

"One of the big factors was the better-than-expected inflation [data]," said Leon Myburgh at Barclays Capital.

The inflation benchmark, CPIX, in December rose 4.3 percent year on year. That was well below forecasts predicting there would be no change from November's rate of 4.6 percent.

Old Mutual Asset Managers research head Rian le Roux said: "It certainly raises the possibility of a rate cut of 50 basis points in the first half of 2005, but the outcome of the February monetary policy committee meeting is too close to call now."

At 5pm the rand was bid at R5.928 a dollar, a 3.5c gain on its level at that time on Tuesday.

The rand is expected to trade in a R5.90 to R6.10 range in the absence of any major moves in the US unit and euro.

The euro rose to $1.3047 in London yesterday afternoon, from $1.2972 late on Tuesday in New York as the dollar dipped on profit taking, analysts said. The dollar dropped against the yen, to ´103.45 from ´103.63.

On Tuesday, the dollar was boosted by strong US consumer confidence figures, but it slipped yesterday after Germany's Ifo business confidence survey rose to 96.4 in January from 96.2 in December, indicating a tentative recovery in the German economy.

Late yesterday in London, the yen was under upward pressure as the market latched on to comments attributed to a Chinese finance official, analysts said.

Paul Chertkow, an analyst with the Bank of Tokyo-Mitsubishi, said there was a report that Chinese finance minister Jin Renqing would discuss the yuan's peg to the dollar at the Group of Seven (G7) meeting in London on February 4 and 5.

BNP Paribas analyst Iain Stannard said an official speaking for Jin made the comments at a forum organised by The Economist magazine.

"The yen has strengthened on the back of these comments," he said.