Rand tumbles as Zuma wins stay of execution – downgrade worries persist

by Xola Potelwa

(Bloomberg) — The rand led losses among global currencies as concern mounted that South Africa’s credit rating may be cut and lawmakers rejected a motion to impeach President Jacob Zuma.The currency declined as much as 2.6 percent against the dollar, the worst performance among 31 major currencies. An index of commodity prices fell for a sixth day.

A South African child holds a 50 rand note in a file photo.
A South African child holds a 50 rand note in a file photo.

“The rand is most vulnerable given the credit rating downgrade risk, which seems to have come into focus again given what has happened with regard to President Zuma,” said Christopher Shiells, senior emerging-market analyst at Informa Global Markets in London. The ruling party “risks being split by this issue which may mean they struggle to get to grips with the issue of real economic reform.”

Deputy Governor Daniel Mminele on Monday warned risks to South Africa’s ratings are rising before a Standard & Poor’s conference on the nation’s credit outlook. S&P and Fitch Ratings classify the nation at the lowest investment grade. Moody’s Investors Service, which ranks South Africa a level higher, is reviewing its rating for a possible downgrade.

The rand traded 2.3 percent lower at 15.1290 per dollar by 1:13 p.m. in New York, its biggest fall since March 15. The currency extended declines after parliament voted 233-143 against impeaching Zuma for refusing to repay state funds used to upgrade his private residence. Government bonds fell, pushing the yields on 2026 debt up 11 basis points to 9.26 percent, the highest level in a week.

The nation is at risk of losing its investment-grade credit rating amid the slowest rate of growth since 2009 and investor confidence has been undermined by Zuma’s surprise firing of his finance minister in December followed by a court ruling last week that he violated the constitution by refusing to repay government money.

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