Johannesburg – South Africa’s rand fell to fresh 10-week lows against the US dollar on Wednesday, kept on the back foot by investor worries about the state of the economy and the threat of mine strikes spreading to other sectors.
Africa’s second-largest economy is heading into an annual mid-year period of wage negotiations between workers and employers and investors fear that a crippling five-month platinum strike could set a precedent for boycotts elsewhere.
The rand touched a session trough of 10.8050, the weakest it has been since March 25, a day after the central bank warned of below-expectation GDP growth this year due to strikes, low commodity prices and electricity shortages.
By 17:40 SA time the local unit was trading at 10.7705, down slightly from Tuesday’s close at 10.7630 and on track to notch its fourth consecutive daily loss.
Recent data has pointed to an economy under stress, with the latest Purchasing Managers’ Index published on Wednesday showing that South Africa’s private sector kept shrinking in May.
The weak data poses a quandary for the central bank, as it balances the need to keep monetary policy accommodative, with that of reining in rising inflation.
“Despite the slumping economy, we think the South African Reserve Bank will be forced to raise policy rates later this year,” BNP Paribas said in a note.
“Failure to do so … could place the already vulnerable currency at risk, given the very low level of its real rates relative to those of its emerging-market peers.”
Government bonds tracked the rand lower on Wednesday, and yields, which move inversely to prices, edged higher across the curve.
The secondary market benchmark maturing in 2026 added one basis point to 8.395 percent while the 2015 bond was up 3.5 basis points at 6.72 percent.