South Africa’s rand tumbled after a rating agency cut the country’s coveted investment grade status, leaving President Jacob Zuma’s decision to fire his finance minister responsible for wiping out almost all the currency’s gains for the year.
The rand slid to R13.7 against the dollar, taking its drop in the past five days to almost 9 per cent. Having recorded a gain of as much as 11.5 per cent for the year before the current bout of political turmoil, the rand now lags behind almost all emerging market currencies.
S&P cut the credit rating to BB+ from BBB- and assigned a negative outlook, citing fiscal policy risk following Pravin Gordhan's sacking as finance minister.
Bonds weakened in response to the downgrade, with the yield on the benchmark bond due in 2026 adding 14.5 basis points to 9.125 percent. Yields on South Africa's sovereign dollar bonds rose across the curve.
The dismissal late last week of Pravin Gordhan, who as finance minister won respect from investors for his fiscal discipline, has prompted a backlash from business leaders, criticism from within the ruling African National Congress and opposition calls for a vote of no-confidence in Mr. Zuma.
However, despite the rand’s decline in recent days, some in the foreign exchange market said that the fallout in the market had been mild compared with previous episodes of political turmoil in South Africa.
Some traders are betting the rand will recoup losses if Zuma is pushed out of office as anger grows over the controversial sacking inside the ruling African National Congress.