JOHANNESBURG: South Africa's rand slid to its weakest in more than two weeks against the dollar on Wednesday as investors fretted about a public row between police and Finance Minister Pravin Gordhan and a possible rating downgrade.
The rand's sharp fall will complicate the central bank's interest rate decision on Thursday, as it tries to balance fears about waning economic growth and rising inflation pressures.
The prolonged spat between Gordhan and the elite Hawks police unit has raised concerns that the run on the rand and bonds seen in December when President Jacob Zuma fired Gordhan's predecessor without explanation could be repeated.
With Moody's analysts due to start a visit to South Africa on Wednesday after putting South Africa's Baa2 credit rating on review last week, investors fear further political uncertainty could hasten a downgrade.
The rand hit a session low of 16.1300 per dollar in early trading, down 1 percent on the day and underperforming its peers in a basket of emerging market currencies. Government bonds also fell, with the yield on benchmark 2026 paper spiking 11.5 basis points to 9.565 percent.
The currency had tumbled more than 2 percent on Tuesday after the Hawks said Gordhan may face legal action for failing to answer questions about surveillance by the South African Revenue Service, which he headed from 1999-2009.
"The timing of the Hawks' investigation has sat uneasily with investors, who are increasingly sensitive to both rating and political developments in South Africa," Standard Chartered analyst Razia Khan said.
For ratings agencies, she added, "changed perceptions of South Africa's institutional strength may be material to the assessment of South Africa's creditworthiness".
Standard & Poor's and Fitch, which rate South Africa just one notch above junk status, have also warned they could downgrade its ratings, which would sharply raise debt costs.
Zuma's somewhat aloof stance as the tussle drags on has fuelled speculation that Gordhan, whom he appointed in December to calm investors spooked by an earlier abrupt switch of finance ministers, does not have his full backing.
The president has not publicly commented on the matter since a statement last month in which he said he had full confidence in Gordhan but that the Hawks must continue their probe.
Gordhan, who won respect during a previous stint as finance minister in 2009-2014, met investors in London and the United States last week but analysts said his charm offensive could prove ineffectual given domestic events.
"It is difficult to see how Mr Gordhan's assurances ... are going to outweigh developments this week that suggest the risk factor in investing in South Africa has increased," NKC African Economics political analyst Gary van Staden said.
"The real crux is that, no matter what assurances he gave and what level of trust exists in Mr Gordhan, no-one can be sure he will be in office by this time next month."
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