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Johannesburg - South African prosecutors could not have announced plans to charge Finance Minister Pravin Gordhan for fraud at a worse time: two weeks before he is due to outline plans to kick-start the economy and avert possible credit rating cuts to "junk".
The rand plunged nearly 4% on Tuesday on news Gordhan had been summoned to court on November 2 and fell to fresh month lows against the dollar on Wednesday.
Fears Gordhan might not continue as minister - he has said he will - also pushed up the yield on benchmark 10-year government debt by 23 basis points to five-week highs.
BNP Paribas Securities economist Jeffrey Schultz said the charges against Gordhan would be viewed "in a highly negative light" by the rating agencies.
Credit rating agencies are already worried about sluggish growth and political instability in Africa's most industrialised economy, and have warned against easing the fiscal restraint that Gordhan has espoused.
With a medium term budget policy statement scheduled for October 26, Gordhan has indicated he will slash his own initial growth forecast of 0.9%. The central bank is predicting an expansion of just 0.4% in 2016.
South Africa is rated BBB-, the lowest investment-grade category, by both Fitch and Standard & Poor's and a notch higher at Baa2 by Moody's. All three are due to review their ratings in November and December, but could strike immediately if Gordhan is replaced.
"The agencies have been very patient with South Africa, but we think these latest political convulsions may be the last straw and trigger downgrades to sub-investment grade," US based financial services firm Brown Brothers Harriman said.
Previously finance minister from 2009 to 2014, Gordhan was recalled to the post to stem a selloff in South African assets after President Jacob Zuma abruptly replaced finance minister Nhlanhla Nene with an unknown politician in December.
He and central bank governor Lesetja Kganyago have since worked hard to reassure investors that economic policy remains free from political interference. Prosecuting Gordhan could undo those efforts, South African business leaders who have accompanied Gordhan on roadshows abroad warned on Wednesday.
"We believe this is part of a campaign against him and the National Treasury, in an effort to make it difficult for them to conduct their core responsibilities of maintaining fiscal discipline," they said in a joint statement.
Standard Bank meanwhile said its year-end target of 15 per dollar for the rand might prove too optimistic.
"The market is clearly reading the latest developments as negative," it said. "If Pravin Gordhan should step down, the currency could test 15.00 and even the high of 17.00 seen in January this year."
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