The sell-off of the rand continued in early morning trade on Monday, rapidly weakening from the initial lows of Friday.
“The sell-off is attributable to both the risk aversion caused by the Covid-19 pandemic, and the country’s downgrade by two rating agencies in the span of a week,” said Bianca Botes, executive director at Peregrine Treasury Solutions.
The local unit surrendered 3% to the dollar on Friday, hitting an all time worst level against the greenback, and breaching R19, after Fitch downgraded the country’s credit rating.
The ratings agency downgraded South Africa’s long term foreign currency debt from BB+ to BB with a negative outlook, citing a “lack of a clear path towards government debt stabilisation” while also noting the impact of the Covid-19 on growth.
Minister of health Zweli Mkhize announced on Sunday evening that the total number of confirmed Covid-19 cases in South Africa is 1,655, up 70 from the previous report.
He said that the total number of Covid-19 tests conducted to date is 56,873, up 2,936 from those reported on Saturday.
“It is with sadness that we report yet another two deaths related to Covid-19. This takes the total number of Covid-19 related deaths in South Africa to 11,” the minister said.
The South African Reserve Bank said it would start buying debt in the secondary market to boost liquidity.
The burden of support has fallen on the central bank because the government lacks the fiscal space and resources to provide stimulus. Despite their efforts, central banks alone won’t be able to stimulate the regional economy out of a coronavirus crisis, Bloomberg reported.
It noted that could take African economies up to three years to recover from the slowdown and the continent needs emergency stimulus of $100 billion, including debt-servicing waivers, citing the region’s finance ministers.
“I suspect governments feel they can’t afford a bigger fiscal response unless they are given much needed support from the G7,” said Charlie Robertson, Renaissance Capital’s global chief economist.
“The virus is a global threat so there are good, selfish reasons for the West to support African efforts to fund the suppression of the virus.”’
The global economy meanwhile, is already contracting, and is losing steam faster than in the early days of the financial crisis, according to Bloomberg Economics’ new global GDP tracker.
The tracker reading for March shows the global economy contracting at an annualized rate of 0.5%, down from 0.1% in February and 4.2% at the start of the year. With lockdowns deepening over the course of March and set to stay in place in April, the March reading is unlikely to be the worst of the downturn.
“There is little data due for release today. China is celebrating the Ching Ming festival, while the UK will release construction PMI figures and South Africa its business confidence figures,” Botes said.
The rand traded at the following levels against the major currencies:
- Dollar/Rand: R19.28 (1.69%)
- Pound/Rand: R23.57 (0.43%)
- Euro/Rand: R20.85 (1.66%)