Rand falls to 2-week low as economy slumps, stocks flat

South Africa‘s rand fell to a two-week low against the dollar on Tuesday and government bonds weakened after data showed the economy suffered its worst quarterly contraction in nine years in the first quarter.

At 15:05 GMT, the rand traded at 12.7900 per dollar, 1.8% weaker than its close on Monday. The unit had earlier fallen more than 2% to a session low of 12.8300, its weakest since May 21, according to Thomson Reuters data.

South Africa‘s economy shrank by 2.2% in the first quarter of 2018, with the most significant falls in the agricultural, manufacturing, mining sectors, Statistics SouthAfrica said.

This was the largest quarter-on-quarter decline since the first quarter of 2009.

The poor data pointed to the huge challenge facing President Cyril Ramaphosa to deliver long term economic growth after his election in February ignited a wave of optimism.

“Everyone perhaps got a little bit ahead of themselves but it would have been extremely difficult for our president to turn things around in three months,” Rand Merchant Bank foreign exchange trader Jan Sluis-Cremer said.

“It does put pressure on the Reserve Bank in terms of what they do with rates. Do we see another rate cut in July to try and force growth to start coming through?”

The South African Reserve Bank kept its benchmark repo rate on hold at 6.5% in May as it balanced risks to consumer price inflation and a fragile economic growth recovery.

In fixed income, the yield on the benchmark government bond rose by 8 basis points to 8.65%, reflecting weaker prices.

On the bourse, stocks ended little changed as investors juggled the weak economic data and higher commodity prices.

The blue-chip JSE Top-40 index was flat at 51 413 and the broader All-share index inched up 0.16% to      57 779.

Industrial conglomerate Bidvest, one of the barometers of economic sentiment in South Africa, slumped 5% after GDP data.

On the flipside, Anglo American and BHP Billiton rose 2.7% and 2.2%, respectively, lifted by higher metal prices.