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Rand hits seven-month low as Cabinet delay fuels reform concerns

May 28 2019 19:02
Colleen Goko

South Africa’s rand slumped to a seven-month low as an unexpected delay in the appointment of the cabinet stoked concerns President Cyril Ramaphosa is facing opposition to his reform agenda.

The currency’s slide on Tuesday started when the ruling ANC confirmed David Mabuza would be sworn in as a lawmaker, opening the way for him to be reappointed as deputy president. It gathered momentum as investors speculated about the composition of the executive. That would be announced this week, the government said at the weekend, without giving a specific date.

Mabuza, 58, was linked to a succession of scandals while he served as premier of Mpumalanga, though he denied the allegations and has never been charged. Still, his reappointment could set back Ramaphosa’s efforts to repair the reputational damage to the party after his predecessor Jacob Zuma’s scandal-marred nine-year rule. The delay in the appointment of the cabinet suggests Ramaphosa’s isn’t having it his own way as he negotiates with factions within his party.

"Investors worry that Ramaphosa will not be able to root out corruption from the top echelons of the government as promised, endangering his reform agenda," said Per Hammarlund, the Stockholm-based chief emerging-market strategist at SEB AB. The rand could reverse declines if Mabuza shows commitment to reform measures, he said.

The rand dropped as much as 2.2% and traded 1.9% weaker at 14.7088 per dollar by 17:05, hitting its weakest level since October and leading emerging-market currency declines. Yields on benchmark 2026 government rand bonds rose six basis points to 8.45%.

"Buy the rumour and sell the fact is in full effect right now," said Wichard Cilliers, a trader at TreasuryOne. "It’s putting the rand under pressure because investors thought there was a chance that the cabinet would be cleaner. But we need to see the official news about Mabuza, the real deal about what his role will be."

It’s been a difficult May for developing-nation currencies in general due to a risk-off environment sparked by the uncertainty around a US-China trade deal. Even so, the rand is underperforming its peers, weakening 2.2% month-to-date compared with the 1.4% drop for the MSCI EM Currency Index. Foreign investors have sold a net R6.1bn of government rand bonds this month, according to JSE data.

"It is indeed local factors and politics that seem to be the main culprits," said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. "Foreigners are still cautious and the latest developments on the appointment of the deputy president should not help foreign appetite."

rand  |  election 2019  |  economy  |  currencies


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