JOHANNESBURG: South Africa's rand weakened to a new record low on Friday, slumping more than 3 percent in a sell-off by investors after this week's dismissal of the finance minister, while stocks fell, with banks taking the biggest hit.
President Jacob Zuma sacked Nhlanhla Nene late on Wednesday in favour of a relatively unknown lawmaker David van Rooyen, unnerving investors in an ailing economy whose 'investment grade' status is already at risk.
By 1055 GMT the rand was 1.58 percent lower against the dollar at 15.7200, pulling back slightly from a slide to the psychologically crucial 16.00 level.
Yields on local and dollar denominated debt soared as the likelihood of a downgrade to junk spooked investors.
"Markets don't like uncertainty," Cratos Capital equity analyst Greg Davies said.
"A lot of the selling is from foreign investors whose confidence in the South African government has been shaken."
Credit ratings agency Fitch downgraded South Africa last Friday, leaving the continent's most sophisticated economy just one notch above "junk" status, and said on Thursday Nene's firing "raised more negative than positive questions".
The sacking of Nene, a veteran civil servant in the ministry who was keen to rein in government spending, has also sparked a sell-off in South African banks, which have dropped nearly 20 percent over since Thursday.
Analysts speculated that the Reserve Bank may call an emergency meeting to increase interest rates.
"It's something that they could do considering the rand has lost 10 percent of its value in the last week," ETM Analytics currency analyst Jana van Deventer said.
South Africa's central bank surprised markets in November by raising benchmark lending rates for the second time in 2015, warning that failure to act on inflation risks could worsen the country's already weak growth.
The banking index dropped more than 10 percent in early deals before recouping some of the losses to trade 7.8 percent lower by afternoon as worries grew that South Africa sovereign credit rating would hit profits and drive bad debts among the nation's banks.
Barclays Africa plummeted 12 percent to 116 rand, FirstRand as lost 8 percent to 35.68 rand and Standard Bank fell 6.8 percent to 98.55 rand.
DOWNGRADE
A downgrade would jack up South Africa's borrowing costs, which would flow through to the banking system.
The blue-chip JSE Top-40 index dropped 0.9 percent to 43,843, while the broader All-share index was off 1.12 percent at 48,438 points by 1033 GMT.
The yield on the benchmark government bond due in 2026 has added nearly 200 basis points, or 2 percent, in the last two days to levels last seen during the 2009 recession.
Many economists have questioned van Rooyen's ability to steady an economy being hammered by the collapse in prices of commodity exports that range from coal to gold, and raised concerns that public spending could spiral out of control.
"If you were going to design a terrible period to fire a minister, this is the perfect time.
It is a real tragedy," said Graeme Korner, fund manager from Korner Perspective.
Overseas investors also shunned the country's dollar-denominated debt, with the average yield premium to hold South African debt compared to US Treasuries surging to 6-1/2 year highs.
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