South Africa's rand backtracks after China cuts lending rates

May 11, 2015 8:05 AM

JOHANNESBURG (Reuters) - South Africa's rand slipped on Monday after China cut interest rates for the third time in six months, putting emerging market currencies back under pressure.

At 0615 GMT the rand had weakened 0.25 percent to 11.9550 per dollar, slipping back from gains of more than 1 percent on Friday after underwhelming U.S. jobs data pushed back bets of a rate cut by the Federal Reserve.

"It looks like the market is starting to believe strongly in the 'lower for longer' rates scenario," Warrick Butler, a currency dealer at Standard Bank, said in a market note.

Government bonds held on to recent gains with yields mostly lower, although the benchmark instrument due in 2026 was flat at 8.09 percent in early trade, with inflows into local bonds signalling possible gains for the currency.

However, analysts predict the People's Bank of China's (PBOC) decision to cut both their deposit and lending rates by 0.25 percent in response to soft demand at home and abroad may pause any gains in emerging assets.

China, a major export destination for South Africa, has seen its economic growth slow to 7 percent, a level not seen since the depths of the 2008/09 global financial crisis.

Domestically, South Africa's statistics agency publishes March manufacturing data on Tuesday, while the government is due to announce results of public sector wage negotiations.