South Africa market rout worsens
Firing of minister comes as country’s economy faces junk rating status
South African markets plunged for a second day, with the local currency breaching 16 per dollar for the first time, as fallout from President Jacob Zuma’s decision to fire his finance minister spurred speculation of the central bank may hold an emergency meeting on interest rates.
The rand extended its drop as the worst performing among 31 major and emerging markets last week as yields on benchmark government bonds neared record highs following the shock dismissal late on Wednesday of Finance Minister Nhlanhla Nene. Stocks fell deeper into a correction as banking shares tumbled for the biggest two-day decline since October 2001.
The demise of Nene, who was pushing the government to contain spending, comes as South Africa’s $350 billion (Dh1.3 trillion) economy faces a credit downgrade to junk, the slowest expansion since the 2009 recession and rising debt levels. To add to the uncertainty, Zuma chose as his replacement David van Rooyen, a little-known lawmaker who investors say is unlikely to oppose the president’s plans to move forward with proposals to build a nuclear-power industry, bailout the stateowned airline and push other spending before local-government elections next year.
An early meeting of the Monetary Policy Committee “could happen,” Abri Du Plessis, an economist and money manager at Gryphon Asset Management Ltd, said by phone from Cape Town. “You can’t just have a 200 basis point increase in yields and think everything is OK. This is a lot more serious than what the government handles it as. If this goes on, you will see severe reaction.”
The South African Reserve Bank didn’t respond to requests for comment. The currency weakened as much as 3.8 per cent to 16.0543 per dollar before paring losses to 15.7571 as of 12.40pm in Johannesburg yesterday.