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The rand slumped on Wednesday as ratings agency Moody’s warned that the pace of fiscal consolidation in Africa’s most industrialised nation had slowed and retail sales data disappointed, underlining the fragility of the economy.
Moody’s is the only one of the “big three” ratings agencies which still has South Africa’s sovereign rating in investment grade, so any hint that the agency could lower that rating easily unsettles financial markets.
President Cyril Ramaphosa, who replaced scandal-plagued Jacob Zuma as head of state in February, has staked his reputation on boosting growth and wooing foreign investors after a decade of economic stagnation.
Traders said the rand was also hurt by a resurgent U.S. dollar, which struck a 13-month peak earlier in the day, and by comments from a top official in South Africa’s ruling African National Congress (ANC) about expropriating land from white farmers.
This afternoon, the rand was 3.11% weaker at 14.6900 per dollar.
It is down more than 8% in the past week after being rattled by turmoil on Turkish financial markets, which triggered a broad emerging market sell-off.
South Africa’s central bank has said it would not intervene to support the rand.
“The only time we get involved in exchange rate markets is when there is dislocation in markets and we are far from a dislocation in financial markets,” Governor Lesetja Kganyago told reporters in Cape Town.
In a presentation to Parliament, the central bank said economic recovery would be “weak and choppy”.
Retail sales growth slowed in June, raising the possibility of a recession in the second quarter.
South African government bonds were also weaker, with the yield on the benchmark bond maturing in 2026 up 8.5 basis points at 9.03%.
Dollar-denominated bonds issued by the South African government also fell across the curve on Wednesday after Moody’s warning.
“We expect a slower pace of fiscal consolidation than the government of South Africa is forecasting,” Lucie Villa, a Moody’s vice-president, said in the ratings agency’s report, adding economic growth this year was expected to be lower than the government’s estimates.
“It’s mainly the Moody’s comments which have sent the rand weaker,” said Jan Sluis-Cremer, a forex dealer at Rand Merchant Bank.
ANC chairperson Gwede Mantashe’s comments on land could also be having an impact, he said.
Mantashe said in an interview published on News24 that white farmers who own more than 12,000 hectares of farmland should hand over the rest to the state without compensation.
Read: 139 farms targeted for expropriation without compensation
Stocks fell more than 3%, driven lower by Naspers, which fell more than 8%, as internet giant Tencent Holdings posted its first profit decline in nearly 13 years. Naspers owns a 31 pct stake in Tencent. – Reuters
