Rand Declines Because of Pay Strikes and Reduced Debt Rating By Fitch

For the 4th day on a row, The Rand, South Africa’s major currency has experienced slide. The currency is now at its lowest figure in the last 4 weeks. Fitch Rating decided to cut the debt rating of this African country to BBB and this raised serious questions on the investors’ mind over the economic health of South Africa. Incidentally, Moody’s Investors Service and Standard & Poor’s have already cut short South Africa’s debt rating.

Rand experienced a decline of 1.1% and is currently priced at 8.6663 per USD. This is the 2nd worst performing currency in the most prominent 25 emerging market currencies. In 2013, so far, Rand has experienced a loss of 2.1%. The yields on the 10.5% bonds which are due in December, 2026 also experienced a decline of 1 basis point and are at 7.11% currently. In the last 3 days, the same has dropped by 25 basis points on a whole. 

Fitch has actually downgraded South Africa to the second lowest investment grade and it is now at par with other countries such as Mexico, Brazil and Russia.

Apart from the economic problems, South Africa has faced a lot of trouble because of the social tensions inside the country as well. Recently, the farm workers started protesting and as a result, Harmony Gold Mining Ltd. went ahead to close their biggest mine.

The Emerging Market Strategy’s Departmental Head for Barclays, Koon Chow stated that the sentiment effect on this downgrade will certainly not help currency in anyway. However, Chow added that rating downgrades were pretty much expected and the investors have been cautious of the South African fiscal policy. Fortunately, the rating outlook of South Africa in a stable state.
In September, 2012, the rating of South Africa was downgraded to Baa1 by the Moody’s Investors Service. Only a month later, Standard & Poor also cut its rating to BBB. Both of these cuts were made perceiving negative outlook of South Africa.

Incidentally in August, 2012, pay strikes all over the country started and it spread to different operations such as coal, gold, iron-ore etc. These strikes have also caused disruption for agriculture and transportation. Ion de Vleeschauwer, who works as the Chief Dealer of Bidvest Bank stated that thanks to Harmony’s decision, South Africa, will now be deemed negatively by investors.