August 15, 2018 / 7:05 AM / a year ago

South African rand slumps after Moody's warning, stocks tumble

JOHANNESBURG (Reuters) - South Africa’s rand slumped on Wednesday as ratings agency Moody’s warned that the pace of fiscal consolidation in Africa’s most industrialised nation had slowed and retail sales data disappointed, underlining the fragility of the economy.

A street money changer counts South African Rands in Harare, Zimbabwe, May 5, 2016. REUTERS/Philimon Bulawayo

Moody’s is the only one of the “big three” ratings agencies which still has South Africa’s sovereign rating in investment grade, so any hint that the agency could lower that rating easily unsettles financial markets.

President Cyril Ramaphosa, who replaced scandal-plagued Jacob Zuma as head of state in February, has staked his reputation on boosting growth and wooing foreign investors after a decade of economic stagnation.

Traders said the rand was also hurt by a resurgent U.S. dollar, which struck a 13-month peak earlier in the day, and by comments from a top official in South Africa’s ruling African National Congress (ANC) about expropriating land from white farmers.

At 1516 GMT, the rand was 2.56 percent weaker at 14.6125 per dollar.

It is down more than 8 percent in the past week after being rattled by turmoil on Turkish financial markets, which triggered a broad emerging market sell-off.

South Africa’s central bank has said it would not intervene to support the rand.

“The only time we get involved in exchange rate markets is when there is dislocation in markets and we are far from a dislocation in financial markets,” Governor Lesetja Kganyago told reporters in Cape Town.

In a presentation to parliament, the central bank said economic recovery would be “weak and choppy”.

Retail sales growth slowed in June, raising the possibility of a recession in the second quarter.

South African government bonds were also weaker, with the yield on the benchmark bond maturing in 2026 ending 7.5 basis points higher at 9.02 percent.

Dollar-denominated bonds issued by the South African government also fell across the curve on Wednesday after Moody’s warning.

“We expect a slower pace of fiscal consolidation than the government of South Africa is forecasting,” Lucie Villa, a Moody’s vice president, said in the ratings agency’s report, adding economic growth this year was expected to be lower than the government’s estimates.

“It’s mainly the Moody’s comments which have sent the rand weaker,” said Jan Sluis-Cremer, a forex dealer at Rand Merchant Bank. “(ANC Chairman Gwede) Mantashe’s comments on land could also be having an impact.”

Mantashe said in an interview published on the News24 website that white farmers who own more than 12,000 hectares of farmland should hand over the rest to the state without compensation.


Stocks also fell sharply, sending the benchmark index down more than 3 percent and booking its biggest one-day percentage drop in more than two years.

The JSE Top-40 index lost 3.76 percent to 49,615, the biggest one-day fall since June 2016. The broader All-share index was off 3.4 percent at 55,646.

Naspers, the country biggest company by value, took the most points off index, skidding 8.2 percent as its Chinese money spinner Tencent posted its first profit fall in nearly 13 years. Naspers owns a 31 pct stake in Tencent.

Other decliners were mobile phone operators Vodacom, down 3.5 percent 123.57 rand, and rival MTN Group , which was down 2.6 percent at 99.41 rand, a level last seen eight years ago.

Additional reporting by Wendell Roelf in Cape Town and Tiisetso Motsoeneng in Johannesburg; Editing by James Macharia and Richard Balmforth

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