Rand reacts on vote outcome
Zuma victory spooks market
THE RAND reversed sharply on Tuesday after President Jacob Zuma survived an eighth motion of no confidence against him, with markets now moving their attention to tommorow’s rating review by Moody’s and October’s Medium-Term Budget Policy Statement (MTBPS) for certainty.
The local unit weakened by more than 1 percent against the greenback after the much anticipated vote of no confidece againt Zuma failed to pass.
The rand on Tuesday lost its previous day’s gains against the dollar and was bid at R13.41 after the results of the vote were announced, from an intraday’s high of R13.12.
William Jackson, a senior emerging markets economist at Capital Economics, said the rand was bound to retreat after Zuma emerged victorious from the latest challenge to his authority as the secret ballot had created an expectation that he might be voted out of office.
“Local currency bond yields, which dipped on Monday, will probally edge back up,” Jackson said.
The local currency unit on Monday had firmed to a month’s high against the dollar, while the JSE hit new highs after Baleka Mbete made her decision on the procedure of the vote public.
Peter Attard Montalto, an emerging markets analyst at Nomura, said the markets had already done most of their correction, but would grind weaker in the coming days as the negative status quo reasserted itself.
“We see weaker second quarter growth numbers, increasingly weak fiscal numbers and a fragile MTBPS in October compound the downgrades path in the coming nine months.
“The failure of the vote even under secret ballot, we think will maintain weak business and consumer confidence and hold private sector investment back,” Attard Montalto said.
Moody’s is expected to provide its rating review on South Africa tomorrow.
Last month the ratings agency issued a research note in which it warned that the uncertainty around the independence of the SA Reserve Bank would inform its future rating outlook on the country.
It said that it viewed the central bank’s independence as key in its outlook on the country’s diminishing institutional strength.
Ray Parsons, a professor at the North West School of Business, said that the country was currently facing strong economic and political headwinds, which needed to be carefully handled to minimise economic instability.
“After the vote of no confidence, the MTBPS in October will be the next major opportunity to boost certainty and credibility in policy.
“In the context of low growth and limited fiscal space, the upcoming MTBPS has now become a major challenge for Minister Malusi Gigaba.
“The financing and governance of state owned enterprises like Eskom and South African Airways (SAA) pose high risks to the fiscal outlook,” Parsons said.
SAA has asked the Treasury for a R13 billion recapitalisation over the next three years for it to become a going concern.
Gigaba last week told legislators that talks to recapitalise SAA were under way and that he would make the necessary pronouncements in the MTBPS.
The rand has shown volatility every time a motion of no confidence has been taken against Zuma, all seven prior such motions in Parliament and the two within his party had elicited rand strength pre the voting and weakness post the voting.