The rand fell to a four-year low, set for its worst month since 2011, amid speculation the central bank may sell dollars to soothe volatility and as government officials tried to reassure investors.
Movements in the currency are “somewhat exaggerated,” the central bank’s Deputy Governor Daniel Mminele said in Pretoria yesterday. While the regulator is committed to a flexible exchange rate, it would be concerned by “abrupt and disorderly movements,” he said. The comments may point to intervention if daily moves “got out of hand,” said John Cairns, a currency strategist at Rand Merchant Bank.
The currency of Africa’s biggest economy slumped as much as 2.4 percent to 10.2847 per dollar, the weakest intraday level since March 11, 2009. It traded at 10.1255 as of 3:24 p.m. in Johannesburg for a decline this month of 11 percent, the most since September 2011. Yields on government bonds due December 2026 climbed 14 basis points, or 0.14 percentage point, to 7.59 percent. The yield rose a record 84 basis points this month.
The swings in the rand “smacked a little bit of panic and it is quite possible that the Reserve Bank would come into the market in a period like this,” RMB’s Cairns said by phone from Johannesburg. “While I don’t have direct knowledge of intervention, I wouldn’t be surprised.”
The central bank isn’t conducting any market operations outside its normal mandate, Mminele said in an e-mailed response to questions today. Governor Gill Marcus has repeatedly said the central bank doesn’t target a level for the rand and it has a policy of accumulating reserves without severely influencing foreign-exchange markets.
“The South African Reserve Bank is in contact with market participants on a daily basis, to execute various transactions as part of monetary policy implementation or to service client requests,” Mminele said. “Any transactions in the foreign exchange markets resulting in significant changes to reserves levels are reported and explained in a structured manner on a monthly basis.”
The rand extended losses after South Africa’s trade deficit widened more than estimated in April. The shortfall swelled to 15 billion rand ($1.5 billion), from 7.8 billion rand the previous month. The median estimate of 13 economists in a Bloomberg survey was 9.5 billion rand.
The currency will stop depreciating at “some point” and retrace its losses, National Treasury Director General Lungisa Fuzile said yesterday in an interview with Johannesburg-based Talk Radio 702. “When the depreciation is too fast and there is a lot of volatility, we get concerned,” he said in an interview with Johannesburg’s state-owned SAfm radio today.
The rand’s relative strength index fell to 14.7. It has been trading below the 30 level that indicates a currency may be oversold since May 20, according to data compiled by Bloomberg. The currency’s three-month implied volatility versus the dollar rose 102 basis points today to 17.32 percent, the highest since October, as options traders anticipate wider swings in coming months.
The rand has weakened 17 percent this year, the worst among 24 emerging markets and 16 major currencies monitored by Bloomberg. It has declined for 16 of the past 17 trading days.
Mining strikes caused more than 15 billion rand in lost output and shaved about 0.5 percentage point off gross domestic product last year, according to the Treasury. GDP growth slowed to an annualized 0.9 percent in the first quarter from 2.1 percent in the fourth, Statistics South Africa said this week.
“South Africa’s fundamentals are at risk because of all the strike action and labor issues,” Bronwyn Blood, who helps manage the equivalent of $1.8 billion in fixed-income investments at Cadiz Asset Management Ltd., said by phone from Cape Town. “There could be further rating downgrades off the back of this. Significant rand weakness will feed through to inflation.”
Standard & Poor’s and Moody’s Investors Service kept South Africa’s rating on a negative outlook after lowering it by one level last year. Fitch lowered the nation’s debt rating to BBB, the second-lowest investment grade, in January.
President Jacob Zuma said yesterday he appointed a group of ministers to mediate between rival labor unions. Labor unrest that started at platinum mines in August spread to gold, iron-ore, chrome and coal producers with farmworkers and truck drivers also joining protests last year.
“If the disruption is sustained, there’s no doubt about it, it will impact on growth,” the Treasury’s Fuzile said on SAfm today. “If we are able to avert it, and I think we will, then we stand a good chance that if it impacts on growth at all, the impact will be negligible.”
Metals and other commodities accounted for 53 percent of South Africa’s exports in 2012, according to government data. The country has the biggest platinum reserves and is the world’s fifth-largest gold producer. Glencore Xstrata Plc, the world’s fourth-biggest mining company, said production at three South African chrome sites has been disrupted by unauthorized strikes since May 28.
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