The rand has passed R18 to the dollar mark. This is a record low for the currency and it came after markets opened Monday morning.
It follows Moody’s downgrade of South Africa’s credit rating to junk status on Friday night. This means, amongst others, that South Africa’s borrowing cost will increase, as is already reflected by a rise of the R186 bond yield to 10.65 percent.
Moody’s was the last of the credit rating agencies that still had an investment grading of South Africa’s debt. This means that South Africa will eventually have to exit from global bond indices, causing a greater outflow of foreign capital and a further weakening the rand.
Last week economists warned that the rand will remain extremely weak in the coming days as the coronavirus continues to ravage global markets.
The currency was trading at lows of R17, 74 last week Monday.
It breached R17 the week before.
Standard Bank Chief Economist Goolam Ballim predicted the rand could reach the R18 mark.
“Emerging markets are in acute risk aversion, financial market participants are almost indiscriminately selling assets and turning to cash as a safe haven. Given that South Africa is an emerging market and one that has a substantial commodity component to its GDP and an emerging market that was already weak prior to the COVID-19 means that South Africa would be in the crossheads of this sell-off and this will result in the rand remaining vulnerable and weak.”
Credit: Source link