Bloomberg News

Rand Falls to 4-Week Low on Risk EU Debt Crisis to Slow Growth

November 18, 2011

Nov. 17 (Bloomberg) -- The rand tumbled to a four-week low against the dollar on concern the global economy will slow as European leaders struggle to stem the region’s debt crisis, damping demand for South Africa’s commodity exports.

South Africa’s currency weakened as much as 1.4 percent to 8.2661 per dollar, the weakest level since Oct. 20, and traded 1 percent down at 8.2306 as of 3:12 p.m. in Johannesburg. Against the euro, the rand retreated 0.7 percent to 11.0955.

Commodity prices declined for the first time in three days, according to the Standard & Poor’s GSCI Index. The uncertain global economic outlook created by the European debt crisis is putting pressure on the prices of commodities including iron, Marius Kloppers, chief executive of BHP Billiton Ltd., the world’s biggest mining company, said today.

“The risk posed to the global economy by the sovereign debt crisis in Europe is high and increasing,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in a research note. “The risk of a major fallout and negative consequences for the rand is high.”

German Chancellor Angela Merkel today rejected French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. The euro-area economy is heading toward a “mild recession” by the end of the year, ECB President Mario Draghi said on Nov. 3.

Recession Risk

The lack of action and decisiveness in the E.U. to address the debt crisis in that region risks a global recession, South African Finance Minister Pravin Gordhan said today.

“Every single day, the lack of action, the lack of decisiveness, the inability of the European authorities to put together a substantial enough package of solutions is creating more doubt, more uncertainty and the potential for a recession to return at least to some parts of the world, if not the globe as a whole,” Gordhan said in an address at the University of Stellenbosch, near Cape Town.

South Africa’s benchmark stock index declined 0.6 percent today, led by commodity exporters including BHP Billiton and Anglo American Plc. Raw material exports account for about 45 percent of South Africa’s foreign currency earnings, according to South African Revenue Service data.

South Africa is “export-oriented which makes it exposed to slowdown risks,” Benoit Anne, the London-based head of emerging-market strategy at Societe Generale SA, said by e-mail. SocGen recommends selling the rand against the Turkish lira.

South Africa’s 6.75 percent bonds due 2021 declined, pushing the yield up three basis points, or 0.03 percentage point, to 8.08 percent.

--With assistance from Mike Cohen in Cape Town. Editors: Peter Branton, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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