South African Rand Declines in Week on Global Recession Concern

By Vernon Wessels

Dec. 6 (Bloomberg) -- South Africa’s rand fell against the dollar this past week as the stock market declined with those around the world on concern the global economy is headed toward a recession.

The rand weakened as the country’s benchmark index of equities fell in the week by the most since October on concern slumping economies in the U.S. and euro region will erode demand for higher-yielding emerging-market assets. South Africa’s currency also slipped after reports showed manufacturing shrank at the fastest pace in at least nine years in November.

“There is general apathy toward emerging markets like South Africa because of the global slowdown,” said David Gracey, head of foreign-exchange trading at Nedbank Group Ltd. in Johannesburg. “There isn’t a lot of offshore flow” into the country because of the negative economic data, he said.

The rand fell 3.8 percent this past week to 10.4300 per dollar by 5:35 p.m. in Johannesburg yesterday. Against the euro, it dropped 3.6 percent to 13.2122.

South Africa’s benchmark FTSE/JSE Africa All Share Index fell 9.1 percent this past week, the biggest drop since the five days ended Oct. 10. The MSCI World Index lost 8.2 percent.

Africa’s biggest economy relies on purchases of its stocks and bonds to fund the current-account 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 in 2007, he predicted.

Foreigners sold almost 68 billion rand ($6.6 billion) more than they bought of the country’s assets.

Limited Declines

Declines for the rand may be limited amid speculation the central bank will lower interest rates on Dec. 11, helping to boost growth in the continent’s biggest economy.

“The global environment has deteriorated so rapidly that they’ll have to consider a rate cut,” said George Glynos, the managing director of Econometrix Treasury Management in Johannesburg. “Investors may rotate increasingly back into South African bonds and equities as the growth outlook improves.”

Slowing inflation and lower oil prices may persuade the South African Reserve Bank to cut its main rate from 12 percent, the highest level in more than five years.

Consumer-price growth slowed for a second month in October, easing to 12.4 percent, still double the central bank’s 6 percent ceiling. Oil has slipped almost 70 percent since reaching a record on July 11.

Government bonds rose in the week, with the yield on the benchmark 13.5 percent security due September 2015 falling 21 basis points to 8.07 percent. The yield on the 13 percent note maturing in August 2010 dropped 40 basis points to 7.91 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Vernon Wessels in Johannesburg at vwessels@bloomberg.net