South African Rand Near Six-Year Low as Central Banks Cut Rates

By Garth Theunissen and Janice Kew

Oct. 8 (Bloomberg) -- South Africa's rand traded near a six- year low against the dollar after the Federal Reserve, European Central Bank and four other central banks lowered interest rates in a coordinated effort to ease the global financial crisis.

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank cut their benchmark rates by a half point. The central banks of Switzerland and China also took part. Earlier, the rand fell for a third day as investors sold emerging-market assets on concern the credit crisis would prompt a recession in the world's biggest economies.

``There's a general sense of relief worldwide that has helped reduce some of the extreme risk aversion we've seen in markets recently,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``Emerging-market currencies have come under extreme selling pressure in recent times and this is providing some respite.''

The rand slipped to 9.2820 per dollar by 2:42 p.m. in Johannesburg after earlier falling as much as 5.4 percent to 9.4469, the weakest since November 2002. It dropped versus 11 of the 16 most-traded currencies monitored by Bloomberg, slipping 3 percent to 12.5416 per euro.

The Fed's decision brought its benchmark rate to 1.5 percent and the Frankfurt-based ECB's main refinancing rate is now 3.75 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

The Bank of Japan, which didn't participate in the move, said it supported the action.

U.K. Bailout

The cut in borrowing costs followed the U.K. Treasury's statement that it will buy preference shares in the nation's banks to partially nationalize the industry, and the Bank of England will make at least 200 billion pounds available for banks to borrow under the so-called special liquidity plan. Britain joins the U.S., Germany, Ireland, Greece, Iceland and Spain in rushing out bailout measures for financial institutions struggling with a global credit crisis.

``The bailouts might help stabilize the banking system but they won't stop the world's major economies from slowing,'' said George Glynos, managing director of Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions in Johannesburg. ``Emerging-market assets are selling off aggressively because of fears a global recession may be deeper than originally anticipated.''

Glynos recommends selling the rand ``up to the 9.5 per dollar level'', and said it will trade in a range between 9.26 and 9.55 to the dollar in the next two weeks.

``I would lock in profits at about the 9.5 level as it's unlikely to fall beyond that,'' he predicted.

Equity Losses

The rand dropped as stock markets around the world slumped on concern the fallout from the credit crisis and the seizure in bank lending will stifle expansion and erode corporate earnings.

``Investors are still focusing on markets that are likely to be affected by what seems like an inevitable global recession,'' said Robert Beange, an emerging-markets currency strategist in London at JPMorgan Chase & Co. ``People are using that as an excuse to sell out of risky assets like the rand.''

Government bonds were mixed. The yield on South Africa's benchmark 13.5 percent security due September 2015 added 2 basis points to 8.80 percent. The yield on the 13 percent note maturing in August 2010 lost 4 basis points to 9.20 percent. Yields move inversely to bond prices.

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.netJanice Kew in Johannesburg at jkew1@bloomberg.net