(Updates rand levels, adds bonds, background)
JOHANNESBURG Oct 12 (Reuters) – South Africa’s rand
weakened on Friday after ratings agency SP downgraded the
country’s local and foreign currency sovereign ratings, saying
underlying social tensions would increase government spending
pressure and reduce fiscal flexibility.
The rand fell to 8.77 to the dollar soon after the
downgrade — a loss of more than one percent on the day — from
8.70 before the SP release.
The currency closed at 8.66 in the New York market on
Thursday.
Standard Poor’s cut South Africa’s credit rating one notch
to BBB with a negative outlook, saying mining strikes and social
tension could reduce fiscal flexibility and hurt growth.
The move came three weeks after Moody’s also cut South
Africa’s government bond rating by one notch to Baa1 from A3,
citing worries about the country’s institutions as well as
future political stability and room for policy maneuvering.
The downgrades will add to the jitters of investors already
worried over strikes which have hit the mining sector hardest
with tens of thousands of workers downing tools since August,
hitting output in the world’s largest producer of platinum and
one of the biggest of gold.
The rand plumbed a 3-1/2 year low of 8.995 on Monday as
sentiment withered on the strikes, also weakening bonds and
stocks. The currency remains vulnerable to negative sentiment
over the job boycotts, analysts noted.
“While there seems to be some progress towards resolving
some of the strikes, the protests have spread to other key
sectors as well,” said BNP Paribas.
Continued…
