A sell-off in the South African rand and bonds gathered pace on Thursday, as news reports that South Africa had
provided arms to Russia spooked investors already concerned about the economic impact of crippling power cuts.
The rand touched a low of 19.3250 against the dollar, down as much as 2.4% on the day and hitting its weakest since the record low set on April 6, 2020, early in the COVID-19 pandemic.
By 1553 GMT the rand had pared some of its losses to trade around 1.6% weaker than its previous close. "Today will go down as a historic day for the (rand) as the perfect storm hit," Kieran Siney of ETM Analytics said in emailed comments, citing news reports about the alleged arms shipment to Russia, intensifying concerns over power outages and dovish comments from a central bank deputy governor. Local news website News24 cited the U.S. ambassador to South Africa as saying that Washington was confident that a cargo ship that docked near Cape Town in December had loaded weapons and ammunition before the ship went back to Russia. Traders and analysts said they were concerned that South Africa could face Western sanctions if it was found to have supplied Russia with weapons while Moscow was waging war in Ukraine. Asked by an opposition lawmaker in parliament about the News24 report, South African President Cyril Ramaphosa said: "The matter is being looked into." Asked about the power crisis which sees many South African households and businesses go without electricity for more than 10 hours a day, Ramaphosa rejected a lawmaker's suggestion that his government had failed to address the issue. Experts predict longer outages deeper into the southern hemisphere winter.
"Foreign investors are worried that our economy will be badly affected by the load-shedding," said Greg Davies, head of wealth at Cratos Capital, using a term for power cuts.
"It's getting bad now because we need to buy dollars to pay for diesel and that will be getting much more expensive with the rand now being so weak to the dollar."
Shares on the Johannesburg Stock Exchange also tumbled, with the blue-chip index ending the day down around 1%.
South Africa's sovereign dollar bonds fell as much as
2.6 cents in the dollar. Longer-dated maturities fell the most,
with the Eurobond maturing in 2047 down as much as 2.645 cents
in the dollar .
(Additional reporting by Kopano Gumbi and Bhargav Acharya;
Editing by Alexander Winning, Emelia Sithole-Matarise and Gareth
Jones)
