During the early trade on Monday, the rand sell-off continued, as it further weakened from the initial lows on Friday.
The sell-off is mainly due to the pandemic of Covid-19 as well as that in a week two rating agencies have downgraded the country according to Bianca Botes, the executive director at Peregrine Treasury Solutions.
After Fitch downgraded the country’s credit rating, the local unit on Friday surrendered 3% to the dollar, which caused it to an all time worst level and went above R19.
The downgrade for South Africa’s long term foreign currency debt went from BB+ to BB with a negative outlook. The reason being that there isn’t a well-defined path concerning government debt stabilisation as well as noting the impact that Covid-19 is having on growth.
The South African Reserve Bank has said that it will be buying debt in the secondary market to boost liquidity. The central bank is now carrying the burden as the government lacks the fiscal space and resources to provide stimulus. However, even with these efforts, the central banks on there own will not be able to stimulate the regional economy out of a coronavirus crisis according to Bloomberg.
It was noted that it could take up to three years for African economies to recover from the slowdown and the continent will need emergency stimulus of $100 billion including debt servicing waivers.
Charlie Robertson, Renaissance Capital’s global chief economist has said that the governments probably feel they aren’t able to afford a larger fiscal response unless they are given the support they need from the G7. He went on to say that 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.
According to Bloomberg Economics new global GDP tracker, the global economy is already contracting and is losing steam quicker than in the start of the financial crisis.
The March tracker reading shows that the global economy contracted at an annualised rate of 0.5%, which is down from 0.1% in February and is down from the start of the year by 4.2%.
However, the March reading is probably not the worst of the downturn as lockdowns over March are set to stay in place in April.
The rand at the start of Monday was trading dollar/rand at R19.28, pound/rand at R23.57 and euro/rand at R20.85.
Article Source: https://businesstech.co.za/news/business/387647/rand-sell-off-continues-as-sa-covid-19-numbers-rise/