South Africa’s rand falls as economy face deep recession

JOHANNESBURG (Reuters) – South Africa’s rand eased against the dollar early on Wednesday, as the currency continued to nurse losses a day after the central bank unexpectedly cut lending rates and the finance minister warned of a deep recession this year.

At 0625 GMT, the rand traded at 18.4770 per dollar, 0.91% weaker than it’s previous close.

The South African Reserve Bank on Tuesday reduced its main lending rate by another 100 basis points to 4.25% to address the deepening economic impact of the coronavirus outbreak, and signalled further cuts could follow.

Separately, Finance Minister Tito Mboweni acknowledged that there would be a deep recession this year because of the global COVID-19 pandemic.

“The downside risks are likely to dominate in the rand while an end of the corona crisis in not in sight,” analysts at Commerzbank wrote in a note.

The central bank projects that the economy will contract 6.1% in 2020, while the International Monetary Fund forecasts a 5.8% dip. Africa’s most industrialised nation was already in recession before it recorded its first case of the new coronavirus in March.

The country has the most confirmed coronavirus cases in sub-Saharan Africa, at 2,415, and that number is expected to rise significantly as more tests are conducted in far-flung rural areas and overcrowded informal settlements.

In fixed income, the yield on the 10-year government bond due in 2030 was 0.5 basis points to 10.425%.