Johannesburg - South Africa’s rand leaped more than 10% to a 2-year low against the dollar earlier this week with government bonds weakening sharply as a renewed rout in the Turkish lira spread to other emerging markets.
The rand is one of the most deeply traded emerging market currencies, making it vulnerable to fluctuates on global markets.
The magnitude of the rand’s tumble came after three days of heavy losses and caught the South African Reserve Bank by surprise.
Economic analyst Wendy Potsa told The Southern Times that the fall of the rand was a warning message to the emerging market in general.
“This is not a challenge to our nation only. South Africa is not in isolation. All emerging markets are threatened when markets are shaken,” she said.
Potsa added that the glitch on the rand was a risk to the economy, which has already been strained by fuel hikes and high unemployment,
“The economy is already ailing due to continued rise in fuel priced. It is strained with the unemployment rate was another indicator that the country needs a stable currency now than ever before,” added Potsa.
The yield on South Africa’s benchmark government bond maturing in 2026 rose 19.5 basis points to 9.050%, reflecting weaker bond prices.
The average yield premium to hold South African debt over safe haven US treasuries rose to 303 basis points (bps), having added more than 30 bps in the past week.
The lira, however, lost more than 40% of its value this year on worries over Turkish President Tayyip Erdogan’s increasing control over the economy and deteriorating relations with the United States.
On Monday, Turkey’s central bank pledged that it would take all measures necessary to maintain financial stability.