Rand Drops to 3-Week Low, Yields Rise as Road Agency Head Quits
The rand declined to a three-week low and bond yields rose after the head of the national roads agency resigned amid concern the government will have to pay the body’s debts, adding to the country’s fiscal deficit.
South Africa’s currency retreated as much as 1.2 percent to 7.8917, the weakest level since April 17. It traded 1.1 percent weaker at 7.8822 per dollar as 3:27 p.m. in Johannesburg, the worst performer among emerging-market currencies monitored by Bloomberg. The yield on the nation’s 6.75 percent bonds due 2021 climbed five basis points, or 0.05 percentage point, to 7.65 percent, the highest since May 1.
Nazir Alli resigned as chief executive of the South African National Roads Agency Ltd. today after the Pretoria High Court last month prevented Sanral, as the agency is known, from starting electronic tolling on 185 kilometers (115 miles) of roads around Johannesburg after consumer and labor groups pushed for a delay. The halt increases the likelihood that the government will have to repay 20 billion rand ($2.6 billion) of the agency’s debt.
“In the longer term this might have an impact on the credit quality of government, and it might have a negative impact on our sovereign ratings,” Michael Grobler, an analyst at Afrifocus Securities in Cape Town, said by phone. “The ratings agencies keep referring to political risks, this might add to those.”
South Africa will help Sanral meet its debt obligations for the next six to seven months, with the National Treasury having to redirect funds toward it, Director General Lungisa Fuzile told lawmakers in Cape Town today. The government can “never walk away” from Sanral’s liability, he said.
“This makes you wonder about stability in other areas,” Ian Cruickshanks, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. “It reflects on the government, and it has an impact on sentiment.”
South Africa’s credit-rating outlook was cut to negative by Standard & Poor’s in March because of slower economic growth and a risk the government may not be able to control spending. Fitch Ratings and Moody’s Investors Service have lowered their outlooks since November.
The rand also weakened as Greece’s political leaders meet for a second day in a bid to form a government following an election that raised concern about the nation’s euro membership.
As voters across Europe rebel against austerity measures imposed to stamp out the debt crisis, Citigroup Inc. said yesterday the risk of Greece leaving the euro by the end of 2013 has risen as high as 75 percent. New Democracy leader Antonis Samaras said he failed to forge an agreement to form a Greek government after weekend elections. The attempt will pass to Alexis Tsipras, the head of Syriza, the second-biggest party, which has vowed to cancel bailout terms for the nation.
“This has all the makings of the next leg to the euro zone debt crisis,” George Glynos, an economist at Johannesburg-based ETM Analytics, wrote in e-mailed comments today. “If history is anything to go by, it could usher in fresh bouts of volatility on global risk markets. The rand’s vulnerability might very well translate into a dollar rally.”
The euro declined against the yen after French President Nicolas Sarkozy, German Chancellor Angela Merkel’s preferred partner for enforcing debt reductions, was defeated by Socialist Francois Hollande. The euro region buys 22 percent of South Africa’s exports.
The rand stayed weaker after the central bank reported that the nation’s gross gold and foreign currency reserves fell 1.5 percent to $49.9 billion in April.
The South African Reserve Bank doesn’t target a level for the rand and won’t intervene in currency markets to weaken or strengthen the currency, Governor Gill Marcus said yesterday. The rand may be moderately overvalued at current levels, Marcus said, without giving an estimate of overvaluation.
“There is an incorrect perception that the Reserve Bank attempts to keep the exchange rate strong in order to help with inflation,” she said.
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