Gordhan speculation sees rand in free fall
Minister’s departure could lead to agencies downgrading SA to junk
THE rand took another tumble yesterday with investors reeling from President Jacob Zuma’s sudden decision to recall his finance minister from a trip abroad in a sign of escalating tensions. The rand lost more than 2% to 13.0968 against the dollar during morning trade, having dropped 2.4%on Monday in its steepest daily loss since the sell-off sparked by the US election in November.
Yields in dollar-denominated sovereign debt and local government benchmark bonds jumped, while the cost of insuring government debt against default also rose.
The losses came after Zuma ordered Pravin Gordhan, trusted as a steady hand by investors, to return to South Africa from an investor roadshow in London, triggering speculation he could lose his job in an imminent cabinet reshuffle.
“The ongoing dispute between President Zuma and Finance Minister Gordhan over the control of public finances and stateowned companies may have reached its final stage,” Piotr Maty, emerging market FX strategist at Rabobank wrote in a note to clients, adding the rand could weaken to 14 to the dollar or significantly more.
“Gordhan’s departure would increase the risk that the required structural reforms will not be implemented and the commitment to maintain spending in check may weaken, which could lead to ratings agencies downgrading South Africa to junk.”
Currencies and emerging market assets elsewhere fared mixed thanks to rising commodity prices but also faced by a steadier dollar, as anxiety over US President Donald Trump’s setback on health-care reforms that had rattled global markets in recent days, waned.
China’s yuan weakened 0.2% and mainland stocks fell 0.4% on further signs of tightening liquidity after the Chinese central bank refrained from injecting shortterm funds into the banking system for the third straight session.
Russia’s rouble eased 0.1% after the central bank chief said there were grounds to increase lending in the country and vowed that cleaning up Russia’s banking system was a priority. However, MSCI’s emerging market benchmark equity index gained 0.3%.
Hungary is expected to hold interest rates at its record low of 0.9%when policymakers announce their decision later in the day.