JOHANNESBURG: South Africa's rand plummeted to a record low on Monday as global concerns about China's economy added to investors' worries about domestic political and economic strains before municipal elections later this year.
The rand fell more than 9 percent to 17.9950 against the dollar, by far its weakest level on record, on fears that China wants to weaken its currency aggressively and boost its export competitiveness.
The South African unit had recovered somewhat to 16.6500 by 1520 GMT, but was still down 2 percent from Friday's close. It was the weakest performer in a basket of 25 emerging market currencies tracked by Reuters.
The rand has been wobbly since President Jacob Zuma plunged Africa's most industrialised economy into uncertainty in December by firing Finance Minister Nhlanhla Nene in what some analysts saw as a sign of strife within the ruling African National Congress party.
In an about-face, Zuma removed Nene's little known replacement within a week, returning former Treasury boss Pravin Gordhan to the post, but investors are now uneasy over the prospect of undue political interference in economic policy.
This was evident on Monday, when the rand took one of the biggest currency hits from a wave of global risk aversion spawned by the China worries.
"The rand to some extent is reflecting a lot of investor concern surrounding the future of policymaking decisions and given the finance ministry debacle at the end of last year," BNP Paribas Cadiz Securities economist Jeffrey Schultz said.
Zuma said after an ANC rally at the weekend that financial markets had over-reacted to his decision to sack Nene.
MOOD BEARISH
But critics say his speech was another sign of the government's failure to tackle structural weaknesses that have kept annual economic growth below 2 percent for the past five years and have led to credit rating downgrades.
"Local sentiment remains poor and the fact that this weekend's ANC conference did not address investor concerns, suggests that these fears could persist," Barclays Africa currency strategist Mike Keenan said in a note. "The underlying rand mood remains extremely bearish."
Government bonds fell heavily on Monday, and the yield on benchmark paper due in 2026 jumped 16 basis points to a month's high of 9.685 percent.
Stocks fared better, led by gold shares as the weaker rand boosted the price of bullion in local currency terms.
The benchmark Top-40 index rose 0.53 percent to 43,482.54, while the All-share gained 0.45 percent to 48,322.68.
The ANC has rallied around Zuma after the finance minister episode, rejecting calls for him to stand down.
But analysts say this could cost it votes in the municipal elections as the ANC's mainly black supporters accuse Nelson Mandela's liberation movement of not doing enough to lift them from poverty since ending white rule in 1994.
White South Africans, on the other hand, feel they have become scapegoats for an economic downturn resulting mainly from poor governance, raising racial tensions that have played out on social media since the start of the year.
DROUGHT ALSO WEIGHS
As the political and economic outlook sours, the rand has already shed more than 7 percent of its value since the start of 2016, adding to a 25 percent decline last year.
This, coupled with rising food prices as a drought in southern Africa takes its toll, will fuel inflation, putting pressure on the South African Reserve Bank (SARB) to raise interest rates even as economic growth languishes around 1.5 percent.
Monetary policymakers have said they would not intervene directly in the market to influence the rand exchange rate, but raised rates by 50 basis points last year to curb inflation.
"The way things are unfolding (means that) decisive action will need to be taken, most likely by the SARB when they meet later this month," Bidvest Bank said.
"Rates need to rise to stem the tide of negative speculative activity and for that to happen the SARB needs to be bold."
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