Rand Weakens for Third Day as South African Credit Demand Slows

The rand weakened against the dollar for a third day after demand for credit in South Africa slowed more than predicted, adding to evidence that growth in the continent’s biggest economy is losing momentum.

Private-sector credit growth slowed to 7.6 percent in September, from a revised 8.1 percent the previous month, the Pretoria-based Reserve Bank said on its website today. The median estimate of 15 economists in a Bloomberg survey was 7.7 percent. The central bank has left its benchmark repurchase rate unchanged since July last year to support the economy expanding at it slowest pace since the 2009 recession, even as inflation breached its upper target range.

“A softer-than-expected outcome is interest-rate positive and thus currency-negative,” Bruce Donald, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in an e-mailed note to clients.

The rand weakened 0.5 percent to 9.8818 per dollar at 4 p.m. in Johannesburg. Yields on bonds due December 2026 dropped one basis point, or 0.01 percentage point, to 7.93 percent.

Labor unrest in South Africa and the country’s high unemployment rate are the main risks to economic growth and threaten its credit ratings, the South African Reserve Bank said in its Financial Stability Review published today. A downgrade may trigger a sell-off by foreign investors, who own 37 percent of South African debt, the central bank said.

Ratings Risk

Moody’s Investors Service Inc., Standard and Poor’s and Fitch Ratings Ltd. have each downgraded the nation’s debt since September. Moody’s and S&P kept South Africa on a negative outlook, citing spending pressures and slow economic growth as risks. The country’s inclusion in Citigroup Inc’s World Government Bond Index in August 2012 attracted about 60 billion rand ($6.1 billion) in inflows, according to the central bank.

“Further downgrades could trigger a negative reaction from investors, especially since it might bring South Africa’s credit rating closer to the benchmark that Citigroup uses to exclude countries,” the Reserve Bank said. “Whereas, some passive investors are likely to maintain their exposures to South Africa, more active investors may reconsider.”

Foreign investors sold a net 171 million rand of South African bonds yesterday after net sales of 1.84 billion rand on Oct. 25, the most in a day in more than two months, according to JSE Ltd. data.

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