By Garth Theunissen Feb. 25 (Bloomberg) -- South Africa’s rand slid to its weakest level in three weeks and bond yields fell to a five- month low as power-price increases were below expectations and improving inflation boosted speculation of a rate cut. The currency of Africa’s biggest economy lost as much as 0.9 percent to 7.8245 per dollar before trading 0.76 percent weaker at 7.7997 by 2:18 p.m. in Johannesburg. The benchmark 13.5 percent bond due September 2015 yielded 8.23 percent, 2 basis points lower than yesterday’s close. The bond’s price rose 7 cents to 123.13 rand. South Africa’s energy regulator yesterday rejected a request by state power utility Eskom Holdings Ltd. to raise tariffs by 35 percent for each of the next three years, granting lower increases instead. A report yesterday showed inflation slowed to 6.2 percent in January, from 6.3 percent the previous month, lower than the 6.4 percent estimated in a Bloomberg survey. “There are downside risks to the Reserve Bank’s inflation outlook after the decision on electricity prices,” said Carmen Nel, an economist at Rand Merchant Bank in Cape Town. “That increases the probability of another rate cut.” The regulator yesterday granted Eskom, which supplies about 95 percent of the country’s electricity, the right to raise fees by 24.8 percent this year from April, 25.8 percent in 2011 and 25.9 percent in 2012. The decision may persuade the country’s central bank to lower its 7 percent benchmark rate, after leaving it unchanged at its past four meetings following 500 basis points of cuts since December 2008. Governor Gill Marcus said at the bank’s Jan. 26 monetary- policy meeting that inflation is expected to drop within its 3 to 6 percent target band on a “sustained” basis by March and remain below 6 percent until the end of 2011. The assumption was based on power-price increases of 25 percent this year and next. RMB expects consumer inflation to fall within the central bank’s target by February and remain within the band until the middle of 2011, according to Nel. Today, the statistics office said producer price inflation quickened to 2.7 percent in January, from 0.7 the month before. To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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