South Africa rand continues slide after banking downgrade

JOHANNESBURG Wed Aug 20, 2014 11:44am EDT

Related Topics

JOHANNESBURG Aug 20 (Reuters) - South Africa's rand recorded a fourth straight day of losses against the U.S. dollar on Wednesday, pressured by the downgrade of the country's four largest banks and stubbornly high inflation.

The market woke up to news on Wednesday that Moody's had cut by a notch the long term local currency deposit ratings for Standard Bank of South Africa, FirstRand, Nedbank and Absa Bank, the local operation for Barclays Group Africa.

The ratings agency cited the recent $1.6 million bailout of African Bank by the central bank as a reason for the downgrades.

The currency suffered another broadside as month-on-month consumer inflation quickened to 0.8 percent in July from 0.3 percent in June. Monthly prices slowed year-on-year but remain above the central bank's 6 percent target.

The rand eased to 10.6795 by mid-morning on news of the banking downgrade and by 1505 GMT had reached its softest in a week of 10.7000 versus the greenback after the inflation release, easing 0.5 percent from its New York close.

The rand also weakened in-line with a broader emerging market (EM) slide against the U.S. dollar which was strengthened by positive housing data.

"The negative impact of the cuts has been masked by the fact that a lot of EM currencies are underperforming," said Sean McCalgan, an economist at ETM Analytics.

"It is apt though that the downgrades took place as a response to the risks that the banks face in these sorts of weak growth conditions, where consumer finances are under a lot of strain."

Government bonds strengthened slightly, with yields on both the 2015 paper and the longer-dated 2026 paper down 1.5 basis points, to 6.575 percent and 8.245 percent respectively. (Reporting By Mfuneko Toyana; Editing by Joe Brock)

FILED UNDER: