Rand set to close month on a high
Currency recovers after fall Give Gigaba time, says Kganyago
SOUTH Africa’s rand looks set to close the month on a high a month after it dropped to the worst among emerging market currencies following changes at the National Treasury and sovereign credit downgrades by Standard and Poor’s and Fitch.
The rand bounced back from a 10 percent slump that followed President Jacob Zuma’s cabinet reshuffle last month and offered investors 2.3 percent compared to a 1.5 percent return for the Columbian peso.
At 5pm on Friday, the rand was bid at R13.1595 against the dollar.
The rand saw the second consecutive week of gains after falling 9 percent against the dollar, following the reshuffle that saw Pravin Gordhan replaced by Malusi Gigaba as finance minister.
Concerns
Gigaba last week met with investors in Cape Town as he moved to ease concerns over his appointment, assuring them that the country would proceed with the nuclear energy procurement only at a pace and scale that the country could afford.
On Friday, Gigaba made his debut international appearance as head of Treasury at the IMF Spring Meetings in Washington.
Econometrix chief economist Azar Jammine said it was important for Gigaba to continue sending the right message to the markets.
”If the minister keeps on saying the things he has been saying in the last few days, we may well renew the momentum of recovery we had witnessed before all the political upheavals and avoid recession,” Jammine said.
The senior agricultural economist at Agbiz, Wandile Sihlobo, said the resurgent rand had somewhat hurt the agricultural commodity markets this week.
The steep fall in rand after Zuma’s cabinet reshuffle
SOUTH Africa’s newly appointed Finance Minister Malusi Gigaba should be given time to settle into the job before being judged on his performance, according to central bank Governor Lesetja Kganyago.
Kanyago said during an interview in Washington that last month’s cabinet reshuffle that saw President Jacob Zuma fire Pravin Gordhan as finance minister had not affected ties between the central bank and the National Treasury.
The minister “needs to be given time to create the rapport with his team at the Treasury,” he said. “It’s a very competent team and hopefully he is able to hold on to that team.”
The remarks seek to ease concern that Gordhan’s dismissal will affect the country’s fiscal and economic policies. The reshuffle prompted S&P Global Ratings and Fitch Ratings to cut South Africa’s credit rating to below investment grade, causing the rand to weaken against the dollar.
While the currency has since trimmed its losses as investors sought higher emerging-market yields, the downgrades risk undermining investor confidence in Africa’s largest economy.
Reassure
Gigaba said he planned to meet with Moody’s Investors Service during his current visit to the US to reassure the ratings company that fiscal policy would not change.
Moody’s placed South Africa on review for a downgrade after Gordhan was fired. The rand on Thursday reached its strongest level since the reshuffle after having erased its 10 percent gain for the year.
Kganyago, a former head of the Treasury, said he had already held two “very cordial, very extensive” meetings with Gigaba and his deputy, Sfiso Buthelezi, to discuss the challenges facing the economy.
We still have a view of the economy that it is improving but it is still in a lowgrowth trap
The three officials are in charge of reviving an economy the World Bank expected to expand by less than 1 percent for the second year in a row.
The central bank, however, is sticking to its forecast of a 1.2 percent expansion for now, the governor said.
“We still have a view of the economy that it is improving but it is still in a low-growth trap,” he said. The Monetary Policy Committee will “take stock” of the latest economic developments when it meets again in May, he said.
The MPC has kept the benchmark interest rate unchanged since last March after raising it by 200 basis points to 7 percent over two years to curb consumer prices. Inflation eased in March to 6.1 percent, the lowest level in six months and just outside the upper end of the central bank’s target band.
The monetary policy stance “strikes the necessary balance between dealing with inflation and supporting the nascent economic recovery,” Kganyago said. – Bloomberg