The rand broke through a psychological level of R16 versus the dollar in morning trade on Wednesday amid concerns that Pravin Gordhan’s job may be in jeopardy.
At 10h10, the rand traded at R16.11 – down 1.25%, having lost 3% on Tuesday against the dollar.
It traded at R22.68 versus the pound (down 0.80%), and lost a percent against the euro at R17.85, having also pared losses against the two European based currencies on Tuesday.
“It’s a cause for concern,” Rune Hejrskov, who helps manage about $1.3 billion at Jyske Bank in Silkeborg, Denmark, told Bloomberg by phone. “Absolutely, we’re pricing South Africa with the possibility that Gordhan may not stay in his job.”
Wayne McCurrie, portfolio manager at Momentum Wealth, told the Money Show on Tuesday that the rand’s slide was primarily as a result of the ongoing spat between finance minister Pravin Gordhan and the Hawks.
The spat triggered uncertainty and raised concerns of a repeat of the run on the rand and bonds in December when President Jacob Zuma inexplicably fired Gordhan’s predecessor, Reuters reported.
“While the current political wrangling continues to dominate headlines, uncertainty regarding the rand will remain entrenched,” Nedbank said in a market note.
McCurrie told Bloomberg that Gordhan will probably retain his post because of his allies in the African National Congress.
“If Gordhan lost his job, it would be completely chaotic,” he said. “It would wreak complete chaos on the markets.”
“The market is doubting how much support Gordhan has from his government,” Vivienne Taberer, a fund manager at Investec Asset Management in Cape Town, said. “The price action is telling you that it’s not clear that he’s got the support. If he does leave, you’ll certainly see the rand a lot weaker than this.”
Moody’s ratings agency representatives were expected in the country for a two-day visit. The ratings agency is in South Africa trying to understand the economic state of a country it put up for review for a possible downgrade two weeks ago.
The central bank will also decide on Thursday whether or not to hike interest rates, as the country staves off waning economic growth, and rising inflation.
Neil Roets, CEO at Debt Rescue said that the likelihood of a 25 basis point increase in the repo rate by the reserve bank could push food inflation as high as 10% with catastrophic results for deeply indebted South Africans.