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Author: Reuters|

21 January 2013 18:35

Rand treads cautiously

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Ahead of rate decision.

JOHANNESBURG - South Africa's rand was steady against the dollar in thin trade on Monday with many market participants unwilling to commit to positions ahead of a rate decision later in the week.

The South African Reserve Bank's (SARB) Monetary Policy Committee is expected to vote for a stay of its key lending rate on Thursday, as South Africa's economy struggles to grow amid rising inflation.

The rand was at 8.8700 to the dollar at 1500 GMT, little changed from New York's 8.8777 close on Friday. U.S. markets were closed for a holiday on Monday, which contributed to low volumes in Johannesburg.

The rand has been creeping weaker this year and looks set to soon test the 9.0 level last seen in November.

It clawed back some ground against the euro after weakening to a four-year low in the previous session, and was trading at 11.8033 against the common currency compared with its previous close at 11.8039.

The government bond yield curve steepened further, with the yield on the benchmark 2026 issue 1.5 basis points higher at 7.25 percent while that on the two-year paper fell 1 basis point to 5.34 percent.

Although consensus points to the MPC keeping its main rate unchanged at its 40-year low of 5.0 percent, a few bond market players are betting on a slight chance of a rate cut.

"If SARB were to go with consensus and keep the rate unchanged, that might potentially see some guys have to revise their expectations," said Rob Price, a market analyst at ETM. "It wouldn't be a massive shift but it might cause a slight change in a small proportion of the market."

December's inflation statistics are due to be published on Wednesday and will also be closely watched by bond traders.

Economists polled by Reuters expect the rate to quicken marginally, to 5.7 percent from 5.6 percent in the previous month.

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