The rand sank to a record low against the dollar on Monday as stocks and currencies the world over reeled from a plunge in Chinese stocks.
The dive to R14/$ prompted the South African Reserve Bank to take the rare step of commenting on the markets.
Saying it was concerned about excessive volatility‚ the bank said it remained committed to the rand exchange rate being set by market forces.
However‚ it was not “completely indifferent” to the exchange rate‚ it said.
“In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications‚ the bank may consider becoming involved in foreign exchange markets to ensure orderly market conditions‚” it said. The rand hit R14.0672/$ before paring back losses.
The weaker rand is likely to fuel inflation‚ putting pressure on the bank to raise interest rates further, despite an economy struggling to grow in the face of a power crisis.
The JSE all-share index ended 2.85% weaker at 47631.19 points‚ wiping off about R300-billion in market value.
The benchmark index has now slipped into “correction” territory‚ which is defined as a drop of more than 10% from a recent high.
“Within emerging markets‚ China’s performance – or lack of performance in this case – doesn’t bode well for South African manufacturers‚ and therefore not for the local economy either‚” Lefika Securities economist Colen Garrow said.
Investors sold local shares from financial to industrial sectors as well as resources. Gold stocks rode out the turbulence‚ though‚ surging 5.67% – the sixth positive session in a row‚ partly on safe-haven buying.
The panic was spurred by Chinese equities falling the most since 2007‚ sending shock waves across the globe‚ but in particular developing countries.
The Shanghai composite index slid 8.5% as concern mounted that China’s economic slump is deepening and government measures to stop it will fail.
A further slowing of growth in China would undermine demand for commodities and curtail imports from countries including Brazil‚ SA and Russia.
Oil plunged towards six-and-a-half-year lows of $40/barrel.
Political turmoil in Turkey and Malaysia added to the negative sentiment as investors assessed the prospect for higher US interest rates.
European stocks closed 5.4% weaker after Asian shares slumped to three-year lows.
US markets opened sharply down. “Anybody with a pulse was nervous when the market opened‚” said Michael James‚ managing director of equity trading at Wedbush Securities.
With serious doubts emerging about the likelihood of a US interest rate increase this year‚ the dollar slid 1.6% against other major currencies.
Reserve Bank might act if rand weakens
The dive to R14/$ prompted the South African Reserve Bank to take the rare step of commenting on the markets.
Saying it was concerned about excessive volatility‚ the bank said it remained committed to the rand exchange rate being set by market forces.
However‚ it was not “completely indifferent” to the exchange rate‚ it said.
“In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications‚ the bank may consider becoming involved in foreign exchange markets to ensure orderly market conditions‚” it said. The rand hit R14.0672/$ before paring back losses.
The weaker rand is likely to fuel inflation‚ putting pressure on the bank to raise interest rates further, despite an economy struggling to grow in the face of a power crisis.
The JSE all-share index ended 2.85% weaker at 47631.19 points‚ wiping off about R300-billion in market value.
The benchmark index has now slipped into “correction” territory‚ which is defined as a drop of more than 10% from a recent high.
“Within emerging markets‚ China’s performance – or lack of performance in this case – doesn’t bode well for South African manufacturers‚ and therefore not for the local economy either‚” Lefika Securities economist Colen Garrow said.
Investors sold local shares from financial to industrial sectors as well as resources. Gold stocks rode out the turbulence‚ though‚ surging 5.67% – the sixth positive session in a row‚ partly on safe-haven buying.
The panic was spurred by Chinese equities falling the most since 2007‚ sending shock waves across the globe‚ but in particular developing countries.
The Shanghai composite index slid 8.5% as concern mounted that China’s economic slump is deepening and government measures to stop it will fail.
A further slowing of growth in China would undermine demand for commodities and curtail imports from countries including Brazil‚ SA and Russia.
Oil plunged towards six-and-a-half-year lows of $40/barrel.
Political turmoil in Turkey and Malaysia added to the negative sentiment as investors assessed the prospect for higher US interest rates.
European stocks closed 5.4% weaker after Asian shares slumped to three-year lows.
US markets opened sharply down. “Anybody with a pulse was nervous when the market opened‚” said Michael James‚ managing director of equity trading at Wedbush Securities.
With serious doubts emerging about the likelihood of a US interest rate increase this year‚ the dollar slid 1.6% against other major currencies.
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