By Garth Theunissen Nov. 20 (Bloomberg) -- The rand fell, extending its first weekly decline in three, as South African labor unions, politicians and the central bank raised concerns that the currency’s 25 percent rally this year was harming the economy. South Africa’s currency slipped for a second day, losing 0.6 percent to 7.5684 per dollar by 4:04 p.m. in Johannesburg, from 7.5265 yesterday. The move extended the rand’s decline this week to 1.9 percent, the steepest five-day drop since Oct. 30. The rand slipped to worst performer this week of its 25 emerging-market counterparts after Trade Minister Rob Davies said its rally this year was a “killer for the economy” and that the African National Congress-led government must “talk the rand down.” Cyril Ramaphosa, a member of the ANC’s national executive committee, said Nov. 17 that the rand’s gains made South African goods “uncompetitive” and that it needed to weaken. Central Bank Governor Gill Marcus said on the same day that the rand’s strength was “of concern.” “The authorities are trying to verbally push the rand weaker and have made it quite clear that its strength is very unwelcome,” said Stanislava Pravdova, an emerging-market analyst at Danske Bank A/S in Copenhagen. “That verbal intervention makes investors a bit worried that the unions, who want a much weaker currency, are starting to exert their influence on economic policy.” Interest Rates The currency of Africa’s biggest economy has surged to third-best performer among emerging markets this year as near- zero interest rates in the U.S., Europe and Japan boosted demand for assets in markets that offer higher returns. Labor unions, mines and exporters have blamed the gains for stalling a recovery from South Africa’s first recession in 17 years. The Congress of South African Trade Unions, which helped propel President Jacob Zuma to power in May, this week argued for a 2 percentage-point cut in interest rates to weaken the rand and revive the economy which government expects will shrink by 1.9 percent this year. Marcus left the key rate unchanged at 7 percent and said she wouldn’t target a specific exchange rate but agreed to discuss a review of the bank’s mandate of keeping inflation within the 3 to 6 percent target. Forward-rate agreements, or money-market futures contracts, show that South African interest rates are likely to rise by about 50 basis points by the end of next year, according to Sidney McKinnon, a portfolio manager at Trident Capital, a Cape Town-based hedge fund. The weighted average of forecasts from nine economists surveyed by Bloomberg predicts a rise of 75 basis points in the benchmark rate. Cycle “We’ve reached the bottom of the rates cycle,” said McKinnon. “Although rates are likely to stay flat until at least the middle of next year, market indications are that we’ll start seeing hikes in the second half of 2010.” ANC Secretary-General Gwede Mantashe said Nov. 15 that the ruling party had agreed with its labor union and Communist Party allies at a three-day conference in Johannesburg that the mandate of the central bank must be reviewed and broadened. Government bonds fell, pushing up the yield on the 13.5 percent security due September 2015 by three basis points to 8.32 percent. The bond’s price, which moves inversely to the yield, fell 19 cents from yesterday’s close to 123.44 rand. Today’s decline pared a weekly rise in the securities to 53 cents, pushing down the yield by 12 basis points from the level on Nov. 13. To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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