Rand tanks amid concerns that Gordhan could be arrested

The rand was under pressure in morning trade on Monday, reaching its weakest level in more than four weeks against the dollar amid concerns that finance minister, Pravin Gordhan, could be arrested.

The local currency has given up R1 over the past two weeks against the dollar, trading 1.63% lower at 14.42 against the greenback by 10h45 on Monday.

City press reported that Gordhan could be arrested within the next two weeks by the Hawks in a case steeped with allegations of political infighting in the ruling ANC party.

Gordhan is facing a charge of corruption for granting former Sars commissioner Ivan Pillay, early retirement and later extending his contract.

The Hawks reportedly believe Gordhan contravened sections of the Public Finance Management Act, the Prevention of Corrupt Activities Act as well as the National Strategic Intelligence Act.

The special investigations unit has also accused the finance minister of setting up an investigation unit within Sars which gathered, collected and evaluated intelligence.

Gordhan has denied any and all wrongdoing. “I have been advised that the alleged charges are wholly unfounded,” he said in a statement earlier this week.

His lawyer, Tebogo Malatji, said Sars’ investigation unit was legal, adding that the Hawks’ interpretation of the law was incorrect.

“We’ve been doing very well over the past few months in currency movements, and then all of a sudden our political idiosyncrasies have blown us out of the water,” Chris Gilmour, an analyst at Barclays Wealth and Investment Management told Bloomberg. “No one will admit that movements by the Reserve Bank could be influenced by political influences, but of course they are indirectly.”

BNP Paribas said in a note on Monday:  “We have to acknowledge that the Hawks may well arrest Mr Gordhan – even though the expert consensus appears to be that such an arrest would be illegal – for his nonappearance. There does not seem to be a way in which they could back down (legally, administratively and without losing face) from the stand-off. Whether this was the intention of the president and his circle, we may never know.

“There are doubtless people working furiously to avoid such an outcome, but it is a possibility. The rand has already taken a hit on the news and this saga is only likely to damage investors’ already shaky confidence in South Africa.”

News24 reported on Friday that should Gordhan get the boot, the probability of a foreign currency ratings downgrade by S&P to sub-investment grade – and maybe even a review earlier than scheduled – would be significantly increased, citing market research company Citi Velocity.

“We are now more concerned that, even if this week’s political events come to nothing, there is now a higher degree of political uncertainty in the minds of the rating agencies,” Citi said in statement.

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Rand tanks amid concerns that Gordhan could be arrested