South African Rand Falls Against Dollar as Stock Markets Tumble

By Garth Theunissen

Nov. 6 (Bloomberg) -- South Africa's rand fell against the dollar for a second day as the nation's equities slipped with those around the world on concern the global economy is headed toward a recession.

The currency also declined the most in three days after a report by Absa Group Ltd., South Africa's biggest mortgage lender, showed house prices rose at the slowest pace in more than 15 years in October as higher interest rates and record inflation curbed consumer spending. The country's benchmark stock index fell for a second day.

``The reality is the world is heading for a major slowdown which isn't good for emerging-market prospects,'' said Roderick Ngotho, a currency strategist for Europe, the Middle East and Africa at UBS AG in London. ``South Africa's economy also suffers from the structural imbalances of slowing growth, high inflation and a large current-account deficit. On a relative-value basis investors would rather put their money elsewhere.''

The rand weakened as much as 2.7 percent to 10.0394 per dollar and was at 9.9700 by 1:30 p.m. in Johannesburg. It fell versus 15 of the 16 most-actively traded currencies monitored by Bloomberg, slipping 1.2 percent versus the euro to 12.8468.

The rand will ``remain weaker and will trade around the 10 handle within a three-month window which is weak by historical standards,'' Ngotho said.

South Africa's FTSE/JSE Africa All Share Index declined 3 percent while the MSCI World Index fell 2.5 percent. Futures on the Standard & Poor's 500 Index slipped 2 percent.

ECB Rates

The European Central Bank will cut interest rates for the second time in less than a month today as the region's economy suffers its worst slump in 15 years, according to 54 of 55 economists in a Bloomberg News survey. The ECB announces its decision at 1:45 p.m. in Frankfurt.

Economic growth in the euro area will slump to just 0.1 percent next year, the worst performance since 1993, the Brussels-based European Commission forecast on Nov. 3.

The rand lost 30 percent this year as foreigners sold almost 69 billion rand ($7.1 billion) more than they bought of the country's assets, partly on concern it will struggle to finance its current-account gap amid the world's worst financial-market crisis since the 1930s.

Africa's biggest economy relies on the inflows to fund the deficit which will reach 7.6 percent of gross domestic product this year, Finance Minister Trevor Manuel said on Oct. 21. Economic growth will slow to 3.7 percent this year from 5.1 percent last year, he predicted.

``South Africa's number one difficulty will be funding the current-account deficit, particularly in an environment of slowing growth and stubborn inflation,'' Ngotho said.

Inflation slowed for the first time in more than a year in September, easing to 13 percent from a record 13.6 percent in August, the statistics office said on Oct. 29. Still, consumer- price growth has exceeded the central bank's 6 percent ceiling for 18 consecutive months.

Government bonds fell for the first time in three days, with the yield on the benchmark 13.5 percent security due September 2015 adding 9 basis points to 8.76 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, gained 4 basis points to 9.28 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net