Picture: ISTOCK
Picture: ISTOCK

The rand extended losses on Friday afternoon, sliding as much as 3% to cross R14 to the dollar for the first time since late November, as the Turkish economic crisis shook global markets.

The slide marked the biggest one-day drop for the local currency in more than a year and potentially closes the window to any relief in high fuel prices.

What started out a fairly quiet week turned out to be bruising for the rand, which was sharply weaker not only against the dollar but also the euro and pound.

Local bonds were not spared either, with yield on the benchmark R186 bond spiking to 8.87% from 8.67%, signifying a drop in the value of bond prices.

Investors were into the dollar because of its perceived safety, which was stronger against virtually every other currency.

Turkey was the buzzword, after its lira plunged a record 18% against the dollar to new lows, dragging other emerging-market currencies along with it.

Turkey’s problems may add to the accumulating negative sentiment towards emerging markets .. and this turn could make financial conditions more difficult for emerging economies in the coming months.
William Jackson, chief emerging markets economist, Capital Economics

The lira accelerated its losses after US President Donald Trump said in a tweet he had authorised the doubling of aluminium tariffs on Turkey to 20% and steel tariffs to 50%.

While the diplomatic fight between Turkey and the US was widely cited as the trigger for the meltdown in the value of the lira, a Financial Times report suggests that the European Central Bank is concerned about some of the region’s banks’ exposure to Turkey, adding a new twist to the Turkish story.

The lira has lurched from one crisis to another since at least the second quarter amid perceptions of political interference in the running of the country’s central bank. At the time, the Turkish woes contributed to poor sentiment towards emerging markets, leading to net bond outflows of R29.59bn in June alone, according to JSE data.

"Aside from the impact on a few small neighbouring countries, most notably Bulgaria, the direct risk of contagion from Turkey’s crisis to other emerging markets is fairly low," said William Jackson, chief emerging markets economist at Capital Economics.

"However, Turkey’s problems may add to the accumulating negative sentiment towards emerging markets in general, and this in turn could make financial conditions more difficult for emerging economies in the coming months."

The weaker rand reflected badly on local banking stocks, in particular, which are sensitive to interest rates.

At 4.10pm, the rand was at R14.0476 to the dollar, from R13.7070 at the US close on Thursday. It was at R16.0729 to the euro from R15.8015, and at R17.9245 to the pound from R17.5780.

The weaker rand reflected badly on local banking stocks and other interest-rate sensitive stocks in late trade on the JSE.