South Africa’s rand weakened early on Tuesday, giving back most of its gains from the previous session. Picture: Pexels
South Africa’s rand weakened early on Tuesday, giving back most of its gains from the previous session. Picture: Pexels

Rand hit by unexpectedly steep GDP decline

By Mfuneko Toyana Time of article published Mar 3, 2020

Share this article:

JOHANNESBURG - South Africa’s rand weakened early on Tuesday, giving back most of its gains from the previous session, ahead of the release of domestic data that is expected to show the economy had slipped into a recession.

At 08:30 the rand was 0.75% weaker at 15.500 per dollar, retreating from a session-best 15.385 on Monday, as emerging markets rallied on the world’s biggest central banks hinting at cutting lending rates.

The Chinese, Japanese and U.S. central banks have all indicated willingness to take monetary measures to limit the economic damage from the coronavirus outbreak, renewing flows into high-yielding emerging assets.

But on Tuesday hopes of rate cuts were dampened after Reuters reported that a meeting of G7 finance ministers and central bank governors was unlikely to produce any fresh fiscal or monetary pledges.

Locally, fourth-quarter gross domestic product data is due at 0930 GMT, with analysts polled by Refinitiv anticipating a contraction in Africa’s most developed economy following nationwide power outages last year by state firm Eskom.

“After recording a contraction of 0.6% q/q in Q3, prospects of an economic recovery for the domestic economy in the final quarter of 2019 and the early stages of 2020 appear limited,” said economists at ETM Analytics in a note.

Low growth has piled on pressure on state revenue and raised the risk of deeper credit downgrades, putting off investors, although the high yield on the rand and local bonds has limited the selloff.

Bonds were firmer, with the yield on the benchmark 2026 government issue down 8 basis points to 8.075%. 

Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, said, "The rand responded to the news by shedding some of its earlier gains, weakening to R15.60 against the USD.  While a contraction was largely expected, the decline exceeded market expectations, demonstrating how extensively the electricity crises in SA continues to plague the economic prospects of the country."

* Additional reporting by Business Report Online. 

REUTERS / BUSINESS REPORT ONLINE 

Share this article:

Related Articles