Johannesburg – A Cabinet reshuffle remains imminent and it will have a negative impact on markets as well as the rand, said an analyst.
In a report by Nomura emerging markets economist Peter Attard Montalto explained that a reshuffle is expected in the second half of March. In Nomura’s view there’s a 60% chance of a reshuffle and the Deputy Minister of Finance, Mcebisi Jonas is more likely to be replaced than Finance Minister Pravin Gordhan.
This follows the swearing in of Brian Molefe as a member of Parliament (MP). He was assigned to two committees, international relations and economic development. “We think his placement in certain committees shouldn’t be over-read as to where he may end up in terms of a ministry,” said Montalto.
READ: Molefe finds new home as MP, and it's not finance – report
Montalto highlighted that Nkosazana Dlamini-Zuma will hand over her chairpersonship of the African Union (AU) on Tuesday, March 14, freeing up her time to serve South Africa. “We see a possibility of NDZ [Dlamini-Zuma] becoming a member of parliament in the week of 20 March.”
“We await that as the key event before a reshuffle in the coming two weeks,” he added.
Impact on markets
If there is no reshuffle by the start of April, the markets may rally strongly. The market reaction to a reshuffle will be more negative, or less positive in the case where National Treasury is left alone, said Montalto.
In the case of a reshuffle happening after the Turkish constitutional referendum on April 16, there may be a potential move of assets away from South Africa and back to Turkey, he added.
Impact on the rand
Nomura expects the rand to trade at R15.50 by the end of the year, however the absence of a reshuffle could see it trading lower, said Montalto.
But much of the rand’s strength depends on decisions by the US Federal Reserve Bank (Fed). There is a possibility of three Fed hikes this year.
The possibility of a credit downgrade also weighs heavily and Moody’s is expected to make a decision on April 7. This may come at a later stage in the August update.
The rand may possibly benefit from a search for yield, Fin24 previously reported.
READ: Rand may benefit from desperate search for yield – economist
"The rand is seen as an option due to the risk appetite of independent investors. South Africa could, therefore, be seen as partial winner in this regard in 2017," according to Dr Edward George, head of Ecobank UK.
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