Johannesburg – The weak rand was a reflection of investor concern surrounding the future of policymaking decisions, a BNP Paribas Cadiz securities economist said on Monday.
The rand plummeted to a record low on Monday as global concerns about China's economy added to investors' worries about domestic political and economic strains before municipal elections later this year.
The rand fell more than 9% to 17.9950 against the dollar, by far its weakest level on record, on fears that China wants to weaken its currency aggressively and boost its export competitiveness.
"The rand to some extent is reflecting a lot of investor concern surrounding the future of policymaking decisions and given the finance ministry debacle at the end of last year," BNP Paribas Cadiz Securities economist Jeffrey Schultz said.
Zuma during said after an ANC rally at the weekend that financial markets had over-reacted to his decision to sack Nene.
But critics say his speech was another sign of the government's failure to tackle structural weaknesses that have kept annual economic growth below 2% for the past five years and have led to credit rating downgrades.
The rand had recovered somewhat to 16.5910 by 13:00 GMT, but was still down 1.7% over Friday's close. It was the weakest performer in a basket of 25 emerging market currencies tracked by Reuters.
The rand has been wobbly since President Jacob Zuma plunged the SA economy into uncertainty in December by firing Finance Minister Nhlanhla Nene in what some analysts saw as a sign of strife within the ANC.
In an about-face, Zuma removed Nene's little known replacement within a week, returning former Treasury boss Pravin Gordhan to the post, but investors are now uneasy over the prospect of undue political interference in economic policy.
"Local sentiment remains poor and the fact that this weekend's ANC conference did not address investor concerns, suggests that these fears could persist," Barclays Africa currency strategist Mike Keenan said in a note. "The underlying rand mood remains extremely bearish."
As the political and economic outlook sours, the rand has already shed more than 7% of its value since the start of 2016, adding to a 25% decline last year.
This, coupled with rising food prices as a drought in southern Africa takes its toll, will fuel inflation, putting pressure on the South African Reserve Bank (Sarb) to raise interest rates even as economic growth languishes around 1.5%.
Monetary policymakers have said they would not intervene directly in the market to influence the rand exchange rate, but raised rates by 50 basis points last year to curb inflation.
"The way things are unfolding (means that) decisive action will need to be taken, most likely by the Sarb when they meet later this month," Bidvest Bank said.
"Rates need to rise to stem the tide of negative speculative activity and for that to happen the Sarb needs to be bold."