The rand suffered in morning trade on Monday, losing 1.2% against the dollar, amid reports that finance minister Nhlanhla Nene has offered to resign from his office.
South Africa has seen this movie before, or at least a very similar version of it when, when former president Jacob Zuma sacked Nene in December 2015, sending the rand into a downward spiral.
Nene was reappointed to the position by Ramaphosa in February and has been tasked with turning around an economy that fell into recession in the second quarter.
However, the latest reports on Nene come in the wake of revelations that he met with the Gupta family fairly regularly before the state capture scandal broke – as well as amid accusations that his son unduly benefitted from business arrangements with the PIC.
“Splashed all over the news headlines this morning is the finance minster Nene asking president Ramaphosa to relief him of his duties. This comes in the wake of Mr Nene visiting the Gupta compound and confessed this at the Zondo Commision.
“We got to ask our self the question, if Mr Nene needs to go, what about Mr Gigaba, Mrs Dlamini, etc,” said Wichard Cilliers, head of dealing and director at TreasuryOne.
“With Medium Term Budget Speech just around the corner the timing is not ideal,” said Cilliers. “We need stability in order to sort out the ailing fiscus. The ANC is very much still reeling from the maladministration caused by our previous president. The ANC has still got plenty of work ahead of them.”
TreasuryOne noted that US non-farm payrolls data out on Friday showed that the number of jobs added was lower than expected, but unemployment in the US dropped to 3.7%, which is the lowest it has been since 1969. Wage growth also was better than expected.
“The USD did not move much after the numbers, but will place further interest rate hikes firmly in place,” Cilliers said.
He pointed out that with the US closed on Monday for Columbus Day, trade volumes will likely be subdued.
By 10h15 on Monday, the rand traded at the following levels against the major currencies:
- Dollar/Rand: R14.94 (1.20%)
- Pound/Rand: R19.50 (0.79%)
- Euro/Rand: R17.16 (0.81%)
A Bloomberg article noted that the South African Reserve Bank is likely to hold its key rate unchanged at its last policy announcement in November. It will increase its hawkish talk, especially as the Monetary Policy Committee now has only six members following the retirement of dovish Brian Kahn.
The central bank is caught between its goal of keeping inflation close to 4.5% and the needs of an economy that fell into a recession in the second quarter. While Governor Lesetja Kganyago has said the central bank will wait for the broader effects of a weaker rand on prices, he also says low inflation is the only way to bolster the economy.
Unless there’s a huge shock to the currency or the price of oil in the next two months, the earliest date for policy tightening is January, Bloomberg said.
“We have brought forward our forecast for the South African Reserve Bank rate hiking its policy rate by 25 basis point to 6.75% to November from 1Q19 previously,” said Mark Bohlund, country manager for Bloomberg.
“This is due to a higher-than-expected three monetary policy committee members voting in favor of a rate hike at the September meeting. The MPC has reverted to six members following the retirement of Kahn, who we view as the most dovish member of the committee in recent years.
“A 3-3 vote now seems likely in November, leaving the decision to Governor Lesetja Kganyago, who tipped the scales towards the more hawkish option in three split rate-setting meetings in 2016-17.”