JOHANNESBURG: South Africa's rand slipped to a two week low on Monday after ratings agency Moody's warned that the recent interest rate cut by the central bank signalled growing political pressure on economic policy.
On the bourse, stocks climbed to an all-time high, buoyed by the recent rally by heavyweights with sizeable foreign earnings.
The rand dipped to 13.1150 per dollar, its softest since July 14, shortly after the Moody's research report, having traded flat for most of the session.
"It's confirmation that Moody's sees monetary policy as key to the rating. And If they aren't happy it means they might downgrade us in the future, but not now," said currency trader at Rand Merchant Bank Jim Bryson.
South Africa's main anti-graft watchdog recommended last month that the central bank mandate be changed to place more focus on growth and not just inflation and protecting the value of the currency, the rand.
Reserve Bank (SARB) Governor Lesetja Kganyago responded by challenging the proposal in court. The case is due to be heard on Tuesday.
Moody's, the last of the top-three rating firms to still rate South Africa's debt in investment grade but with a negative outlook, said that while the rate cut on July 20 would support growth, it also signalled political pressures on the SARB.
"Political pressures on the SARB to maintain expansionary monetary policies are likely to prevail, alongside heightened pressures for fiscal spending," Moody's said.
The rate cut by the bank, the first in five years, surprised markets. All but three of the 27 economists surveyed by Reuters had predicted the bank would keep rates unchanged.
"The rate cut was justified, it's the timing that was a surprise. Previous SARB comments were quite hawkish. We thought they'd just adopt a dovish tone. But I wouldn't go as far as to say they bowed to political pressure," said economist at Investec Kamilla Kaplan.
In fixed income the yield on the 2026 paper rose 4 basis points to 8.635 percent.
On the bourse, e-commerce and media firm Naspers, which holds a third of China's Tencent, led the way, gaining 1.5 percent to 2,892. The stock - up about 40 percent so far this year - hit an all-time high of 2,939.97 rand last week.
Luxury goods maker Richemont, which has risen 21 percent over the same period, and was up 0.52 percent on the day.
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