Rand strengthens after Mantashe says ANC to discuss Zuma ‘options’

The rand made strong gains against the dollar in mid-day trade on Wednesday amid the news that the ANC’s top officials will meet president Jacob Zuma to discuss “options” to avoid him being impeached or voted out by Parliament.

“There is no decision or instruction to recall him, but there is a debate on what is in the air, the question of what is the best option, better than (the) possibility of impeachment and a vote of no confidence, or we do something different,” ANC chairperson Gwede Mantashe told News24 after a meeting of the party’s national working committee (NWC) on Monday.

Mantashe said Zuma’s fate would be decided after the meeting.

News24 reported on Tuesday that members of the NWC had instructed the officials to “confront” Zuma to step down before the State of the Nation Address on February 8, while others said that, if the officials failed to recall him, an emergency national executive committee (NEC) meeting should be called.

Opposition party leaders from the EFF and DA, meanwhile, have called for the South African State of the Nation Address, scheduled for next week, to be postponed until Parliament has had time to elect a new president.

Shortly after mid-day, the rand was almost a percent stronger against the US currency, while it also traded firmer against the pound and euro.

  • Dollar/Rand: R11.86 -0.87%
  • Pound/Rand: R16.76 -1.01%
  • Euro/Rand: R14.77 -0.48%

Zaakirah Ismail, a fixed income strategist at Standard Bank said in a note: “The rand is back below 12.00-12.20 to the dollar. It has gained some reprieve from the weaker dollar and some optimism around Eskom’s results which showed that 54% of funding has been secured for the 2017/18 financial year. Local funding will be sought from April, and international funding in July/August, according to Eskom’s CFO.”

Overberg Asset Management said in a market overview that it is unlikely that Moody’s will downgrade South Africa’s local currency sovereign bonds to “junk” status, citing the current bond market, the financial markets’ most reliable barometer.

OAM said that the sharp fall in South Africa’s country risk premium since president Zuma was defeated at the ANC elective conference tells a powerful story. The country risk premium is the spread between the 10-year South African government bond yield and the yield on the benchmark 10-year US Treasury bond, the so-called “risk-free” rate.

The lower this spread the lower South Africa’s perceived country risk.

“South Africa’s country risk premium is back at levels last seen in the third quarter 2015 prior to Zuma’s firing of Finance Minister Nene. At that time, prior to subsequent credit rating downgrades, South Africa’s bonds were comfortably investment grade,” OAM said.

Read: South Africa is back – and you can thank Cyril: analyst

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Rand strengthens after Mantashe says ANC to discuss Zuma ‘options’