Rand keeps falling as credit downgrade threatens

The South African currency slipped 1.27 percent to 11.6000, its weakest since October 2008.

The South African currency slipped 1.27 percent to 11.6000, its weakest since October 2008. Picture: Gadeeja Abbas/EWN.

JOHANNESBURG - The rand tumbled to six-year lows and bond yields spiked on Wednesday, despite an end to the US dollar's Bull Run and a slowdown in domestic inflation.

By 1536 GMT the South African currency had slipped 1.27 percent to 11.6000, its weakest since October 2008. It soon gave up a modest recovery when investors cashed in profits from the dollar's recent strong run.

Local government bonds also wavered, with the yield on the benchmark issue due in 2026 adding 11.5 basis, touching its worst level in a month at 7.95 percent.

Domestic headline inflation slowed to 5.8 percent year-on-year in November from 5.9 percent in October, remaining in central bank's target band of below 6 percent for the third straight month.

Steadier consumer prices were, however, not enough to lift the pall that has engulfed the rand since Monday, when South Africa's current account deficit hit a greater-than-expected 6 percent of GDP and power-supplier Eskom said blackouts would extend into 2015.

"Fitch and Standard and Poor's give their ratings on Friday. Given the kind of data we've had in the past few weeks and the electricity situation, the outlook isn't looking too good," said Christie Viljoen, senior analyst at NKC Independent Economists.

South Africa's sovereign credit rating by Standard and Poor's already stands just a notch above junk, with a further downgrade likely to trigger more capital outflows and force the central bank to raise rates sooner than expected.

"They (investors) are already pricing in a weaker rating, maybe now or in the next six months, and that's keeping the pressure on the rand," Viljoen said.