Nov. 22 (Bloomberg) -- The rand tumbled to its weakest level against the dollar in more than two months as passage of a law on state secrets and slower-than-forecast U.S. economic growth damped investor appetite for the country’s assets.
South Africa’s currency declined as much as 1.6 percent to 8.4627 per dollar, the lowest since Sept. 23. It retreated 1 percent to 8.4110 as of 4:52 p.m. in Johannesburg, the most among 16 major counterparts worldwide. Against the euro, South Africa’s currency fell 1.3 percent to 11.3982, the weakest on a closing basis since Nov. 3, 2009.
South Africa’s ruling African National Congress used its majority in Parliament to approve a law that Nobel laureate and cleric Desmond Tutu said “could be used to outlaw whistle- blowing and investigative journalism.” U.S. gross domestic product increased 2 percent in the third quarter, down from a 2.5 percent prior estimate, the Commerce Department said today.
“It’s a serious risk-off scenario,” Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, a unit of South Africa’s fourth-biggest bank, said by phone. “It’s a case of ‘sell the rand’ because our market is liquid.”
German Chancellor Angela Merkel said today she sees a “very serious situation” in the euro region as bond yields from Belgium to Spain surged. The U.S. economic data was published a day after a political committee failed to reach agreement on deficit-cutting proposals, setting in motion automatic spending cuts that may slow growth further.
“Concern is escalating all over,” Cruickshanks said. The rand may decline to 8.50 per dollar, a significant support level where traders clustered orders to buy the currency, he added.
South Africa’s secrecy law proposes jail sentences of as long as 25 years for anyone obtaining classified information, even if its disclosure was in the public interest.
“This law is not encouraging investor confidence,” Ion de Vleeschauwer, chief dealer at Bidvest Bank in Johannesburg, which runs South Africa’s largest chain of moneychangers, said by phone. “It is certainly not working in the rand’s favor today. There is dollar demand globally, but we’ve also seen panic dollar buying from local importers.”
The rand may decline to 8.80 per dollar if it breaches 8.52 per dollar, de Vleeuschauwer said.
Bonds fell, driving the yield on 6.75 percent securities due 2021 up 11 basis points to 8.21 percent, the highest since Oct. 5.
A report tomorrow may show South Africa’s consumer inflation rate rose to 5.9 percent in October, from 5.7 percent the previous month, according to the median estimate of 18 economists in a Bloomberg survey. The central bank kept its benchmark lending rate unchanged for a sixth meeting on Nov. 10, saying the inflation rate will breach 6 percent for a “protracted” period in 2012.
The rand has depreciated 20 percent since the end of June, the worst performance among more than 20 emerging-market currencies worldwide. A weaker rand increases costs of imported goods.
“The Reserve Bank may be unwilling to lower interest rates any further,” Cees Bruggemans, the Johannesburg-based chief economist at FirstRand Ltd., the nation’s second-biggest lender, wrote in e-mailed comments. If policy makers see the rand’s decline as overdone, “the Reserve Bank might conceivably even raise interest rates,” he said.
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