The rand depreciated to the lowest in more than four years against the dollar as foreign investors sold South African bank and retail stocks after profit fell 24 percent at the nation’s biggest provider of unsecured loans.
Shares in African Bank Investments Ltd. plunged as much as 25 percent after the Johannesburg-based lender increased first-half credit-impairment charges by 45 percent. The FTSE/JSE Africa Banks Index sank 3.2 percent, while stocks of retailers who extend consumer credit also declined.
“A lot of questions are being raised about the sustainability of unsecured lending,” Gareth Brickman, a market analyst at ETM Analytics, said by phone from Johannesburg. “Banks and retailers are selling off, and you have to see that working through to the rand.”
South Africa’s currency dropped as much as 0.8 percent to 9.4783 per dollar, the weakest level since April 2009. It traded 0.6 percent down at 9.4551 as of 4:24 p.m. in Johannesburg, bringing its decline in the past eight days to 5 percent, the longest losing streak in a year. Yields on benchmark 10.5 percent bonds due December 2026 rose for a seventh day, adding eight basis points, or 0.08 percentage point, to 6.92 percent.
Foreign investors sold a net 2 billion rand ($211 million) of South African stocks and bonds last week, according to the JSE Ltd., which runs the nation’s stocks and bond exchanges. South Africa’s benchmark stock index dropped as much as 1.6 percent today.
South Africa’s National Treasury and the banking lobby group agreed on Nov. 1 to tighten lending rules after the number of consumers with bad credit rose to a record and the increase in loans not backed by assets led to concern that a credit bubble was developing.
The rand’s losing streak comes as precious-metal prices fell, raising concern about economic growth and the nation’s current-account deficit. Gold extended the longest slump in four years, sliding as much as 1.5 percent today to the lowest since April 18. Platinum dropped 1.6 percent to the lowest in almost a month. The metals account for about 20 percent of South Africa’s exports, according to government data for 2012.
Above-inflation wage demands by unions in industries ranging from automobile manufacturing to mining may raise costs for producers, cutting profits and reducing export earnings, Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank.
“Commodity currencies including the rand are really showing strain” as metal prices tumble, De Vleeschauwer said by phone. “These wage negotiations are going to put more pressure on commodity producer. That’s a problem for the rand.”
Slowing inflation may give the South African Reserve Bank room to lower borrowing costs, reducing the rand’s yield advantage over the dollar. The central bank has left its benchmark repurchase rate unchanged at 5 percent since a surprise cut in July to support growth in Africa’s biggest economy. The Monetary Policy Committee announces its decision on interest rates on Thursday as lower commodity prices and slowing consumer demand reduce pressure on prices.
“We stick with our long-standing call that the next move from the Reserve Bank will be a cut of 50 basis points by the first quarter of 2014, and think that the chances of this occurring materially earlier have increased,” Bruce Donald, a foreign-exchange strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “It would be fair to suggest that increasing optimism on domestic interest rate prospects has most likely also played a role in rand weakness.”
Inflation probably slowed to 5.7 percent in April from 5.9 percent the previous month, a report may show on Wednesday, according to the median estimate of 19 economists in a Bloomberg survey.
The MPC will leave its repo rate unchanged this week, according to 19 of 20 economists in a Bloomberg survey. Charles Robertson, chief economist at Renaissance Capital Ltd. in London, predicts a 25 basis-point cut.
Forward-rate agreements starting in December are pricing in more than a 50 percent change of a 50 basis-point cut this year, according to Standard Bank. The contracts climbed six basis points today to 4.85 percent, or 28 basis points lower than the Johannesburg Interbank Agreed Rate.