Rand plummets 1% after news of Treasury resignation

THE RAND tumbled more than 1% and the risk premium on government bonds soared yesterday over news of a top Treasury official resignation, financial woes at the sole power utility and political jostling in the ruling party.

A report by a presidential commission that government raise spending on higher education saw muted response from markets, with traders saying it was short on detail.

The rand, which weakened after the Presidency said it would release the commission’s findings at midday, was little changed after it was published.

It slipped to a one-year low on Friday amid reports that President Jacob Zuma was preparing to introduce free higher education, which would put added pressure on public finances.

At 1.30pm the rand was at 14.5200 per dollar, having tumbled as much as 1.1% to session-worst 14.5425, its weakest level since November 18, 2016.

Government bond due 2026 also weakened. Yields on the paper climbed 14.5 basis points to 9.495%, its highest level since May 2016.

South African 5-year credit default swops, a measure of the cost of insuring the country’s debt, hit a four-month high, stoked by reports of Eskom’s financial troubles. Eskom said it was not insolvent but was facing serious liquidity issues.

Treasury confirmed Michael Sachs’s resignation, saying he wanted to join the civil service in a different capacity.

“The rumour that a senior treasury official has resigned is obviously the main reason the rand moved lower,” said chief dealer at Bidvest Bank, Kumeran Govender.

“But there are also reports that ANC secretary-general Gwede Mantashe is under pressure and that hasn’t helped either.”

Local news reported that Mantashe was facing calls to quit by some members of the party. The ANC denied the claims. – Reuters