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South Africa’s rand weakened after President Cyril Ramaphosa had to avoid a leadership challenge from party rivals who opposed his efforts to curb corruption and implement economic reforms.
The rand fell as much as 0.9%, leading the declines in emerging market currencies against the dollar. Implied volatility increased the most in nearly a month, suggesting that options traders anticipate broader swings in the coming weeks.
The South African government is struggling to revive an economy that was mired in recession before the coronavirus outbreak and that the Treasury expects to contract more than 7% this year.
Ramaphosa’s efforts to stop corruption have been undermined by a faction of the ruling African National Congress that has the backing of his predecessor Jacob Zuma, who was ousted in 2018 amid allegations of corruption.
“South Africa is facing a particularly grim second-quarter GDP and unemployment outcome, and ongoing opposition to the reforms needed to achieve a strong and persistent economic recovery is weighing on the national currency,” said Annabel Bishop, chief economist at Johannesburg at Investec Bank Ltd.
“An environment of continued weak economic growth will impose further credit rating downgrades and weaken the rand.”
South Africa lost its last investment grade credit rating when Moody’s Investors Service downgraded its rating in March. That added fuel to a sell-off of the country’s bonds, with net outflows reaching a record 59 billion rand ($ 3.5 billion) on August 28.
The rand was 0.7% weaker at 16.7138 to the dollar at 1:35 AM in Johannesburg, reducing its advance this month to 2.1%. Benchmark 10-year government bond yields fell two basis points to 9.29%.
Read: Ramaphosa gains the upper hand in the ANC power struggle
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