Rand strengthens over 1.5% on China rate cut

South Africa’s currency tumbled the most since October 2008 in thin Asia trading that exaggerated moves on Monday on concern lower prices for commodities, which account for more than half of the nation’s exports, will deepen as China’s economy slows.

“The real economy in the second quarter has performed negatively”, Statistician-General Pali Lehohla told a press briefing in Pretoria. Production in the mining and quarrying sector dipped 6.8 percent and the agriculture, forestry and fishing industry output slumped by 17.4 percent.

The bank may consider using its own currency reserves to stem the sell-off, but analysts say it does not have enough to make an impact, while raising rates too sharply would hurt already weak economic growth.

South Africa’s economy contracted by 1,3% in the second quarter of 2015, according to estimates.

Meanwhile, the nominal GDP is estimated at R991 billion for the second quarter of 2015, which is R26 billion less than the first quarter. While economists tend to overestimate South African GDP data, they haven’t got it so wrong in many years.

The following industries grew over the same period: finance (+2,7%), personal services (+1,3%), government (+0,6%), transport (+0,2%) and construction (+0,2%).

South Africa’s rand strengthened against the dollar on Tuesday after a rate cut from China revived an appetite for emerging market assets and as investors bank on renewed demand for commodities.

“There is a real risk that South Africa experiences an outright economic recession over the coming quarters”, said Kevin Lings, chief economist at Stanlib, blaming labour disruptions in mining and manufacturing for slowing growth.