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S Africa's rand slumps, hit by Moody's comments

Johannesburg

SOUTH Africa's rand slumped on Wednesday as ratings agency Moody's warned that the pace of fiscal consolidation in Africa's most industrialised economy had slowed.

Moody's is the only one of the "big three" ratings agencies which still has South Africa's sovereign rating in investment grade, so any hint that the agency could lower that rating easily unsettles financial markets.

Traders said the rand was also hurt by a resurgent US dollar, which struck a 13-month peak earlier in the day, and by comments from a top official in South Africa's ruling African National Congress (ANC) about expropriating land from white farmers.

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At 1135 GMT, the rand was more than 3 per cent weaker at 14.6975 versus the US dollar. It is down more than 8 per cent in the past week after being rattled by turmoil on Turkish financial markets, which triggered a broad emerging market sell-off.

South African government bonds were also weaker, with the yield on the benchmark bond maturing in 2026 up 11.5 basis points at 9.060 per cent.

"We expect a slower pace of fiscal consolidation than the government of South Africa is forecasting," Lucie Villa, a Moody's vice president, said in the ratings agency's report.

"Growth this year is expected to be lower than the government's own estimates, weighing on tax revenues, while the public sector wage agreement in June also brings extra, unbudgeted costs," Ms Villa added.

"It's mainly the Moody's comments which have sent the rand weaker," said Jan Sluis-Cremer, a forex dealer at Rand Merchant Bank. "(ANC chairman Gwede) Mantashe's comments on land could also be having an impact." Mr Mantashe said in an interview published on the News24 website on Wednesday that white farmers who own more than 12,000 hectares of farmland should hand over the rest to the state without compensation.

The ANC's plans to amend the constitution to redistribute land to the black majority have been interpreted negatively by some investors, who see them as undermining property rights.

The ruling party has sought to assuage those fears by saying that land reform will follow a parliamentary process and be handled with care.

The rand's latest slump pushed the currency into oversold territory, a trend which is often followed by a correction, according to momentum indicators tracked by analysts.

Analysts have said fears over the Turkish economy are unlikely to hurt the rand for long. REUTERS