Johannesburg - South Africa's rand steadied on Friday, but remained vulnerable after falling sharply the day before when Standard & Poor's downgraded the power utility Eskom to junk, underlining the fragile state of the economy.
The currency weakened more than 2 percent to 12.3535/dollar on Thursday after S&P cut Eskom's long-term ratings to “BB+” from “BBB-” and national scale ratings to “zaA/zaA-2” from “zaAA-/zaA-1”, below investment grade.
By 06h27 on Friday, the rand had recovered somewhat to 12.2650, up 0.33 percent from its New York close.
Pressure still looms over the local unit as the Eskom downgrade has implications for the already strained national budget, because the government guarantees the state utility's debt.
“The ramifications to the South African rating are significant... given our government's insistence on backing them by underwriting their funding requirements,” said Warrick Butler, Standard Bank executive for rand and EM spot trading.
“Eskom as junk is but a ‘bouncy ball’ away from South Africa as junk.”
In fixed income, yields urged higher across the curve, with paper due in 2026 adding 2 basis points to 7.8 percent.
Reuters