Rand turns weaker after S&P warns of pressure on credit rating

April 6, 2016 9:42 AM

Investors have also been worried about Pretoria's commitment to fiscal prudence after President Jacob Zuma suddenly fired two finance ministers in December.

An informal trader counts out change in her cash box at her stall in Hillcrest, west of Durban, South Africa, January 11, 2016.

South Africa's rand relinquished earlier gains against the dollar on Wednesday, turning weaker after Standard & Poor's said low economic growth remained a pressure point on its credit rating.

Ratings agencies have warned of possible downgrades for Africa's most advanced economy, which has struggled to expand significantly since a 2009 recession.

On Wednesday, the rand slumped as much as 1 percent on the day to 15.2800 versus the greenback, after S&P said recent political upheavals in South Africa posed a risk to its sovereign rating.

The rand has lost significant ground since rallying to 14.6050/dollar on Friday as investors cheered a court ruling that Zuma breached the constitution by ignoring a directive to pay for some of the state-funded upgrades to his home.

Zuma on Tuesday survived an impeachment motion by the opposition thanks to his African National Congress party's majority in parliament.

On Wednesday S&P said the focus on the court's ruling and political issues in parliament "could divert government's attention from issues around policy implementation".

The agency also said South Africa, whose GDP is seen expanding by just 0.9 percent this year, needed to grow at much quicker rate if it hoped to avoid a downgrade.

Ratings agencies are concerned the government might have to borrow more to provide funding for cash strapped state firms.

"Growth is important for the ratings agencies (and) the debt to GDP ratio is something they look at closely," ETM market analyst Ricardo Da Camara said.

"Even if your debt stays constant but your growth is weakening that ratio will increase, it just means a greater burden on the government in terms of being able to repay its debt and service its debt."

Government bonds weakened alongside the rand, with the yield on benchmark debt due in 2026 adding 3 basis points to 9.29 percent.

South African stocks however fared better, with the JSE securities exchange's Top-40 index .JTOPI up 0.5 percent from Tuesday's close.