Rand Weakens for Third Day Amid Electricity Supply ConcernsRobert Brand
The rand declined for a third day as electricity supply constraints in South Africa added to concern about slowing growth in Africa’s biggest economy.
Power supply is “exceptionally tight” as unplanned plant shutdowns leaves Eskom Holdings SOC Ltd. with little excess capacity, the Johannesburg-based state-owned power utility said yesterday. Eskom last week asked large clients including mines to cut usage by 10 percent for two days as an emergency measure. The economy expanded at the slowest pace in four years in the third quarter, a report showed yesterday.
“Market participants are no doubt concerned about the impact this might have on the country’s economic performance,” Bruce Donald, a currency strategist at Standard Bank Group Ltd., said in an e-mailed note. “Potential damage to the current account could also be a factor, given that mineral and metals exports from the electricity-intensive mining sector might be adversely affected.”
The rand fell 0.4 percent to 10.1672 per dollar as of 4:08 p.m. in Johannesburg. Yields on bonds due Dec. 2026 climbed four basis points, or 0.04 percentage point, to 8.30 percent.
Foreign investors sold a net 392 million rand ($39 million) of South African bonds and 273 million rand of equities yesterday, bringing capital outflows this month to about 29.9 billion rand, according to JSE Ltd. data.
South Africa’s economy grew at an annualized rate of 0.7 percent in the third quarter, from a revised 3.2 percent the previous three months. The median estimate of 19 analysts in a Bloomberg survey was for 1 percent.
The deficit on the current account, the broadest measure of trade in goods and services, has been at 5 percent of gross domestic product, or above that, since the first quarter of 2012. That has contributed to a weaker rand, which has dropped 17 percent against the dollar this year. South Africa relies on foreign investment in bonds and stocks to help finance the shortfall, inflows that have fluctuated this year as investors’ risk perception toward emerging markets changed.
Eskom’s margin by which available supply would exceed today’s peak demand will be “virtually zero”, spokesman Andrew Etzinger said by phone from Johannesburg. Eskom is spending about 500 billion rand to avoid a repeat of blackouts in 2008 that halted factories and mines for five days, including operations of BHP Billiton Ltd. and Anglo American Plc.
“It’s a bit of a nightmare situation for the rand at the moment, with our weak growth and twin deficits,” Ion de Vleeschauwer, chief currency dealer at Bidvest Bank Ltd., said by phone from Johannesburg. “It looks like the guys are taking their chips off the table.”
The rand extended declines after a report showed fewer Americans than projected filed applications for unemployment benefits last week, a sign the labor market is showing resilience. Jobless claims in the week ended Nov. 23 fell 10,000 to 316,000, the fewest in two months, the Labor Department said today. The median forecast of 44 economists surveyed by Bloomberg called for an increase to 330,000.
Minutes of the U.S. Federal Reserve’s October meeting published last week showed policy makers expected to cut their $85 billion in monthly asset purchases “in coming months” as the economy improves.