Rand Slips to Four-Week Low as Fitch Follows S&P With DowngradeRobert Brand and Victoria Stilwell
The rand slid for a fourth day to the lowest in four weeks as Fitch Ratings followed Standard & Poor’s and Moody’s Investors Service in cutting South Africa’s debt rating amid concern over the economy.
South Africa’s currency declined as much as 1.1 percent and traded 0.8 percent weaker at 8.6663 per dollar by 1:59 p.m. in New York, the second-worst performance of 25 emerging-market currencies tracked by Bloomberg. Yields on the benchmark 10.5 percent bonds due December 2026 fell 1 basis point, or 0.01 percentage point, to 7.11 percent after dropping 25 basis points in the previous three days.
Fitch reduced South Africa by one level to BBB, the second-lowest investment grade and on par with Brazil, Russia and Mexico. The deterioration of the economy and budget deficit has exacerbated social tensions in the nation, which has seen farm worker protests this week and Harmony Gold Mining Ltd. mull closing its biggest mine on illegal strikes and violence. The rand has lost 2.1 percent in 2013.
“The sentiment effect of the downgrade can’t be helpful for the rand,” Koon Chow, head of emerging markets strategy at Barclays in London, said by phone. “It’s a modest negative because ratings downgrades have been expected by investors, who had already been cautious on the fiscal policy.”
Africa’s biggest economy faces weaker growth prospects and heightened social and political tensions, Fitch said in a report. The country’s rating outlook is stable.
“Weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labor unrest,” Fitch said in the report. “The economy has been beset by violent strikes that have affected growth and the current account.”
Moody’s Investors Service in September cut the country’s rating to Baa1 with a negative outlook. Standard & Poor’s followed in October with a cut to BBB, also with a negative outlook.
Pay strikes that began in platinum mines in August spread to gold, coal and iron-ore operations, with about 120,000 workers downing tools at the peak of the unrest, according to the Chamber of Mines. Labor action also disrupted transportation and agriculture. The mining strikes began tailing off in October, as pay settlements were reached.
The rand declined as currencies of other commodity-exporting countries, including Australia, New Zealand and Chile gained. Police have arrested 63 people as protests by farm workers in the Western Cape province continued today, three days after Harmony Gold Mining said it may close its biggest mine.
“The Harmony saga puts South Africa in a very bad light in the eyes of foreign investors,” Ion de Vleeschauwer, the Johannesburg-based chief dealer at Bidvest Bank, said by phone. “It has the potential to diminish our export potential and that’s a bad scenario for the rand. The agriculture protests aren’t helping things.”
The rand stayed weaker even after manufacturing production unexpectedly accelerated for a second month in November. Factory output rose 3.4 percent, compared with a revised 2.7 percent in October, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of eight economists was 1.1 percent.
The currency advanced briefly after data showed exports from China, the biggest buyer of South African raw materials, rose 14.1 percent in December from a year ago. That beat the 5 percent median estimate of 40 analysts in a Bloomberg survey.
The Standard & Poor’s GSCI Index rose 0.6 percent as metals including copper and gold gained. Metals and other commodities account for about 45 percent of South Africa’s exports.