Johannesburg - The rand fell through R11 against the dollar yesterday, as a strike at platinum mines got under way, adding to worries fuelled by troubling manufacturing figures from China and generally poor sentiment over emerging markets.
Frantic efforts to stave off a sell-off in the Turkish lira compounded investors’ worries and boosted the safe-heaven allure of the dollar.
The rand’s slide took the currency to its lowest level in five years by late afternoon. The currency dropped as low as R11.0011 shortly before 6pm, falling more than 1 percent.
The violation of the R11 psychological barrier is likely to spark some anxiety about inflation. A hike in interest rates is the last thing South Africa needs right now as growth in the economy remains tepid amid power supply worries, strikes and ballooning household debt as a majority of consumers continue to live beyond their means.
A persistently weaker currency will push up the prices of food, fuel and everything else that South Africa imports. It will also make life difficult for companies with a cost base in dollars. Ordinarily, at current levels, the rand should be a boon for exporters, but that is unlikely to be the case as strikes, especially in mining, drive productivity to zero.
Mike Schussler, the chief economist of Economists.co.za, said in a post via the Twitter commentary thread of Business Report (@busrep / @Ellis_Mnyandu), that he foresaw “no real rand recovery until power & transport infrastructure is in place. Also strikes do not help.”
He added that exporters were unlikely to see much of a boost. “No export boost overall as we do not have capacity. Sure tourists and wine but no coal, gold or platinum as there’s no power.”
The platinum strike will disrupt operations accounting for about 70 percent of global output of the precious metal, South Africa’s biggest single overseas shipment.
Manufacturing in China, the biggest buyer of South African raw materials, may contract for the first time in six months, according to a preliminary purchasing managers’ index (PMI) reading. The Turkish lira’s slump to a record low prompted investors to sell emerging market assets, exacerbating the local currency’s decline.
“We’re getting hit by a double whammy, because we’re an emerging market currency and we’re a commodity-heavy currency,” Mohammed Nalla, the head of strategic research at Nedbank, said.
“The Chinese story started us off on a weaker footing, and then we saw emerging market currencies across the board sell off aggressively, with Turkey being the big driver.”
The rand has depreciated by about 5 percent so far this year. Yields on rand-denominated bonds due in December 2026 climbed 8 basis points to 8.49 percent, the highest on a closing basis since December 4.
The preliminary reading of 49.6 for this month in China’s PMI released yesterday was below a final figure of 50.5 last month and all 19 estimates of analysts in a survey. A number above 50 indicates expansion.
The Turkish lira weakened for a ninth day, extending its longest stretch of losses in more than 12 years after the central bank said it would wait until next week to raise the cost of funding to lenders. The currency fell to a record during the day but recovered somewhat after the nation’s central bank intervened in the market to stem the slide.
South Africa’s central bank would not follow Turkey’s example as it had a stated policy of non-intervention, and had insufficient foreign reserves to intervene even if it wanted to, Nalla said. – With additional reporting by Bloomberg