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Rand would bomb if Gordhan goes, warns expert

Aug 28 2016 09:00
Reuters and Bloomberg

Cape Town - The rand, which has fallen 4% on fears that Finance Minster Pravin Gordhan faces being charged by the Hawks, will nosedive should he be booted out of office.

After gaining around 10% against the greenback over the past two months, the rand fell 4% this week, with the banking index also falling sharply.

This was in response to news that Gordhan was summoned by the police over an investigation into a so-called rogue Sars tax unit that was set up when he was in charge.

Gordhan was summoned to report to the Hawks on Thursday, but he refused saying he had done nothing wrong.

Analysts have cautioned that the ongoing probe against Gordhan could rock the country's markets, especially as the economy teeters near recession and credit rating agencies consider downgrading it to "junk".

The probe is seen by many analysts and the opposition as a politically-driven attack on Gordhan, however the Hawks denied this.

"This has stoked concerns regarding governance in the country," said Africa analyst at Capital Economics Johan Ashbourne in a note.

Statements of support for the finance minister from President Jacob Zuma and Deputy President Cyril Ramaphosa on Thursday failed to ease anxiety, with a survey of investors and other market participants by Rand Merchant Bank showing about half believe he will be removed.


“The fight is on,”  John Cairns, a currency strategist at Johannesburg-based Rand Merchant Bank, the investment-banking unit of FirstRand, said in an e-mailed note.

“Political heavyweights, including the deputy president, have come out in support of Gordhan, but the Hawks and their supporters might still take the plunge. The rand would bomb if he goes. It still appears to us that not enough risk is priced.”

The rand picked up on Friday as the dollar retreated, with investors awaiting a speech by the Federal Reserve for clues on a rate hike in the United States.

Read Fin24's top stories trending on Twitter:

sars  |  hawks  |  pravin gordhan  |  sars wars
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