The rand posted the biggest decline among emerging-market currencies after Standard & Poor’s cut South Africa’s credit rating by one level, saying mining protests may incite social tension and pressure state spending.
The currency slipped 1.1 percent to 8.7598 per dollar by 7:42 p.m. in Johannesburg, reversing an earlier climb of as much as 1 percent and trimming its advance this week to 0.3 percent. Yields on benchmark 6.75 percent bonds due 2021 dropped seven basis points to close at 6.74 percent before S&P’s announcement.
S&P lowered the rating to BBB with a negative outlook, putting Africa’s biggest economy on the same level as Brazil, Mexico and Russia. Strikes in South Africa’s mining industry may trigger uncertainty surrounding the ruling African National Congress’ policy framework in the run-up to the 2014 election, S&P said in a statement. Rising “social tensions” will also boost spending pressures and reduce fiscal flexibility, according to the ratings company.
The rating change is “absolutely a big deal,” Mike Schussler, chief economist at Economists.co.za, a Johannesburg-based advisory service, said by mobile telephone. “The message is very clear: you guys aren’t playing nice anymore and the investors must be very careful with you.”
The rand rallied earlier today after the country’s truck drivers’ unions signed a three-year wage agreement, ending a strike that had led to fuel shortages, an employers’ body said.
Continuing strikes in the mining industry are having a “significant” impact on an economy already struggling to cope with Europe’s debt crisis, President Jacob Zuma said yesterday.
Foreign investors were net buyers of 1.1 billion rand ($127 million) of South African bonds yesterday, a second day of net purchases following 4.6 billion rand of outflows in the previous three trading days, according to JSE Ltd. data.
The rand’s three-month implied volatility against the dollar declined for a third day, dropping 15 basis points to 17.47 percent in New York, according to data compiled by Bloomberg.