Rand falls in the wake of GDP shock
SA’s economy contracted 3.2% in the first quarter of 2019, a slump from the expansion of 1.4% in the last three months of 2018
The rand weakened more than 1% on Tuesday afternoon following the announcement that first-quarter GDP suffered its biggest drop since the financial crisis in 2009.
In the first quarter of 2019, SA’s economy contracted 3.2%, a big drop from the expansion of 1.4% in the last three months of 2018. Bloomberg’s consensus was for a contraction of just 1.6%.
Shortly after the announcement, the rand weakened from R14.46/$ to R14.64 at about 12pm.
By 2.01pm, the rand had weakened 1.26% to R14.6246/$, 1.35% to R16.4564/€ and 1.39% to R18.5433/£. The euro had gained 0.1% to $1.1253.
The benchmark R186 government bond had weakened, with its yield rising four basis points to 8.445%. Bond yields move inversely to bond prices.
Gold was little changed at $1,323.55/oz, while platinum was down 0.1% to $823.33. Brent crude had fallen 0.4% to $60.5 a barrel.
Crucial sectors such as mining, manufacturing and trade were the biggest contributors to the GDP slump, with manufacturing plummeting 8.8%.
The 10.8% decline in mining, its biggest fall since the first quarter of 2016, made it the third consecutive quarter of contraction in the sector.
Analysts said the worse-than-expected economic decline has increased the likelihood that the Reserve Bank will cut interest rates in the coming months.
“If the Reserve Bank decides to cut rates at its next meeting in July, assuming that the rand stays where it is at the moment, demand in the economy is so weak that, despite a weaker currency and, for example, higher petrol prices, we don't really see much inflationary pressure building up in the economy,” said Efficient Group chief economist Dawie Roodt, “Demand is so weak that the central bank can actually safely cut rates a little bit, if the rand behaves.”