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South African rand hits record low in more market turbulence

By Tannur Anders

JOHANNESBURG (Reuters) – The South African rand hit an all-time low on Friday before paring losses after a minister denied the country’s arms control committee had approved an arms shipment to Russia, on another turbulent day for South African markets.

Early on Friday, JP Morgan slashed its growth forecast on expectations of deeper power cuts as the fallout continued from a U.S. assertion that a ship had carried weapons and ammunition from South Africa to Russia last year.

The rand at one point sank as low as 19.5100 to the dollar, down more than 1.6% on its previous close.

It recovered some losses after Mondli Gungubele, chair of the National Conventional Arms Control Committee, told local radio that it “didn’t approve any arms to Russia” and at 1000 GMT was down around 0.9% against the dollar.

JPMorgan said in a research note on Friday it now forecast a 0.2% decline in South Africa’s 2023 GDP versus a previous forecast of 0.3% growth, citing expectations that power cuts could worsen from their current level of about 10 hours a day.

“We’ve seen the spiraling energy crisis, really depressing economic growth expectations and concerns around state utility Eskom. … The outlook points more towards stagnation certainly for this year,” said James Wilson, EM sovereign strategist at ING.

Electricity Minister Kgosientsho Ramokgopa will brief reporters at 1200 GMT on government efforts to address the power woes.

South Africa’s 5-year credit default swaps, which insure against the cost of a sovereign default, rose 2 basis points from Thursday’s close to 320 bps, their highest level in over six months, according to S&P Global Market Intelligence.

Dollar-denominated sovereign bonds also fell as much as 0.9 cents in the dollar with many issues trading at levels seen last in November, Tradeweb data showed. ,

“The market is still fretting about the sale of weapons to Russia as this could possibly cause sanctions,” said Greg Davies, head of wealth at Cratos Capital.

Shares on the Johannesburg Stock Exchange rebounded on Friday morning from their Thursday slump. The blue-chip Top-40 index (.JTOPI) and the All-share index (.JALSH) had last recovered 1.8% of their losses.