Rand Tumbles as South African Downgrade Concerns Return

  • Recent rand rebound not supported by fundamentals: Bidvest
  • S&P seen downgrading sovereign rating some time this year

The rand weakened below 15 per dollar to the lowest in almost a month amid increasing expectations among economists that South Africa’s credit rating will be cut by the end of this year as growth falters.

The rand fell as much as 1.2 percent to 15.1568, the weakest since April 7 on a closing basis, before paring its losses to be little changed at 14.9659 by 1:59 p.m. in Johannesburg. The currency has slumped 4.7 percent this week, the most out of 31 major and emerging-market currencies tracked by Bloomberg. Yields on government rand-denominated bonds due December 2026 rose 1 basis point to 9.20, the highest in almost four weeks.

S&P Global Ratings, which is due to review its BBB- minus assessment on South Africa next month, will lower the nation’s rating to non-investment grade by the end of this year, according to 12 of 13 economists and analysts surveyed by Bloomberg. Both the National Treasury and South African Reserve Bank forecast the economy will expand less than 1 percent this year. Three months of gains in the rand as a result of dollar weakness and improved investor sentiment may not have been fully warranted, said Ion de Vleeschauwer, chief dealer at Bidvest Bank

“There was nothing supporting that recovery in the currency at all,” De Vleeschauwer said by phone from Johannesburg. “Nothing fundamentally has changed and the market is realizing that June is around the corner, the downgrades are around the corner, and maybe South Africa is not such a safe bet after all.”

The start of Barclays Plc’s divestment from its African unit may also weigh on the currency, with the London-based bank saying Thursday it sold a 12.2 percent stake to money managers. The move implies a potential outflow of as much as 15 billion rand ($1 billion), depending on whether local or foreign buyers acquire the shares, Rand Merchant Bank said in note.