JOHANNESBURG - The rand and oil prices broke record lows yesterday with the local currency breaching the R17 against the dollar level as coronavirus concerns battered the markets and as investors forecast a large interest rate cut from the SA Reserve Bank (SARB).
Oil prices saw $25 on escalating tensions between Saudi Arabia and Russia.
Economists said foreign investors were also nervous that South Africa’s Monetary Policy Committee (MPC) would announce a large interest rate cut today, which made the rand less appealing.
South Africa is likely to see its interest rates cut by between 25 basis points and 50 basis points by the MPC, economists have forecast.
The rand breached R17 against the dollar in early trade as the sell-off continued. By 5pm the rand was trading 42c lower at R17.05 against the dollar from the previous day's corresponding period.
Lukman Otunuga, a research analyst at FXTM, said: “A growing sense of unease over how badly the pandemic will hit the global economy is fuelling explosive levels of risk aversion, hitting appetite for riskier assets including emerging market currencies. South Africa’s rand was one of the many casualties of the darkening mood as the local currency breached its weakest closing level on record.”
He said investors seemed to be pricing-in the probability of the SARB cutting interest rates this week amid the global chaos and widespread risk aversion. Otunuga said dollar strength and rand weakness might send prices beyond R17.
The continued sell-off also saw bond yields rocket as investors unloaded South African and other emerging market assets in a bid to de-risk their holdings.
Yields on 10-year government rand bonds climbed 56 basis points to 11.31 percent, also a record.
Annabel Bishop, the chief economist at Investec, said foreigners had sold R69billion worth of bonds on a net basis since mid-February.
“South Africa’s long-term cost of borrowing has elevated, with the yield on the 10-year government bond rising above 10percent over the last few days from 9percent, as selling of risky assets has elevated in financial markets on the severe rise in risk aversion, Bishop said.
Local banking stocks took a beating with the FTSE/JSE Bank index falling 14.9percent to 5148.83 points at the close. Capitec Bank tanked 28percent.
Oil prices yesterday sank to the lowest level in 17 years.
Sasol shares closed 7.33 percent lower at R34 on the JSE yesterday.
Neil Wilson of Safecap Investments saw West Texas Intermediate crude prices taking a $25 handle yesterday morning, with prices seeing a 30-year low.