Rand under pressure as politics dominates the conversation
The South African rand clawed back some of its losses since the release of the explosive section 89 report on president Cyril Ramaphosa’s Phala Phala farm last week, but it remains in shaky space as political uncertainty persists.
The rand recovered to around R17.19 a dollar on Monday (5 December) as Ramaphosa’s allies rallied around him at the ANC’s national executive committee meeting – this after tanking to around R17.60 amid speculation that the president would resign on Friday (2 December).
However, the currency remains under pressure – trading at around R17.40 on Tuesday – with a delay in the National Assembly vote on the report and Ramaphosa launching a Constitutional Court bid to have the report’s findings set aside, leading to political uncertainty around the president’s future.
According to Investec chief economist Annabel Bishop, the currency has not retreated to levels before the release of the report because concerns still centre on the president’s statement itself, along with some issues raised by the judges on the panel and the increased domestic political risk that has weakened the rand.
Things would have been worse for the local unit if international factors weren’t supporting its stronger position, she said.
“The rand was constrained in its reaction to the Phala Phala report by less hawkish comments coming from the Fed Governor, Jerome Powell indicating the likelihood of a smaller rate hike in December in the US,” she said.
“In addition, the rand’s continued partial recovery today was aided by China increasingly loosening its zero-tolerance stance against Covid-19 over the past weekend, reducing some of the fears about a harsher global economic slowdown than originally feared.”
Despite these supportive factors, risks still abound – and the rand consequently remains above R17.00/USD.
The Fed Chair continued to signal further rate hikes in 2023 – so while the rate may be slowing, the hikes will continue, Bishop said.
“Emerging Market economies face the additional risk of an increase in risk aversion in global financial markets if the Fed’s monetary policy does prove too restrictive, which will add a weak underpin to the rand.
“The rand will also remain at risk from domestic politics,” she said, adding that it is unlikely to recover to the R14.50/USD it reached in the first quarter of the year.
This was echoed by analysts at TreasuryOne and Citadel Global, who both cite the ongoing political risks presented by the Phala Phala report and the fallout in the ANC and National Assembly as key risk factors for the rand.
Ramaphosa has filed a case with the Constitutional Court to have the findings of the panel set aside, while reports from the ANC’s NEC indicate that the president has won support from the majority of the party to reject the adoption of the report in the National Assembly.
However, the country will have to wait another week before this can play out, with parliament postponing the vote by a week so that MPs can vote in person in a physical sitting on 13 December.
While the ANC has given the directive for its MPs to reject the report, some within the NEC – Ramaphosa’s political opponents – have indicated a desire to go against the party line. Opposition parties, meanwhile, will use the opportunity to apply even more pressure on the president and the ruling party.
For the report to be adopted, parliament needs a simple majority to get this done. The ANC has enough votes to reject the report. Should the report be adopted, ultimately, a two-thirds majority would be needed in parliament to vote to impeach the president.
On Tuesday morning, the rand was trading weaker than its Monday close ahead of the third quarter GDP data being published by Stats SA. This is how it was trading against major currencies:
- ZAR/USD: R17.46 (0.17%)
- ZAR/EUR: R18.31 (0.11%)
- ZAR/GBP: R21.29 (0.19%)
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