South African rand plunges as government struggles to revive economy

South Africa’s rand depreciated 2.1 per cent to 16.8229 to the dollar to emerge the most weakened currency against the dollar. This has led to an economic volatility and fears of more economic challenges in weeks to come.

The rand which is headed for its biggest daily drop since June 11 witnessed its greatest decline in a month as the government continues to restructure the economy from recession following the covid-19 pandemic. According to the South African Treasury, the economy is expected to slump by an estimate of seven per cent in 2020.

Johannesburg based chief economist at Investec Bank Ltd, Annabel Bishop is of the assertion that the political opposition to the economic reforms by the country’s President, Cyril Ramaphosa is responsible for the domestic currency’s depreciation. He stated further that if the environment remains hostile to economic growth, it will result in further credit-rating downgrades and the rand would continue to decline.

South Africa, which is currently rated as the second-largest economy in Africa after Nigeria, recorded a negative investment-grade credit rating when Moody’s Investors Service degraded its assessment in March. This led to the sale of the country’s bonds resulting in net outflows culminating a record 59 billion rand equivalent to $3.5 billion on August 28. Yields on the country’s 10-year benchmark bonds also plummeted by two basis points to 9.29%.