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Cape Town - Positive reactions to comments made by SA officials attending the World Economic Forum in Davos about ending corruption and improving the health of public finances have assisted in strengthening the rand to its best level since May 2015, according to Investec chief economist Annabel Bishop.
The local currency broke through the R12/$ level on Wednesday morning, the day after Deputy President Cyril Ramaphosa and IMF managing director Christine Lagarde met for “fruitfull” discussions during the annual meeting of the world's business and political elite.
By 14:30 the rand had reached an intra-day high of R11.92 to the greenback, and was trading at R11.97 to the US dollar. The rand last traded at this level against the dollar on May 25, 2015.
Bishop said that dollar weakness has also contributed to the rand firming. The US currency, she noted, had weakened due to US economic policy concerns to reach three year lows.
TreasuryOne said in a market update that while positive political and economic sentiment had provided a base for the currency to break below R12/$, dollar weakness has pushed the local unit under this level. The group also noted that the rand has been the best performing currency over the past two months.
Team SA in Davos
Newly appointed ANC president Cyril Ramaphosa is leading SA’s high-level government and business delegation to the annual meeting in Switzerland.
Before leaving for Europe, Ramaphosa had said he would woo the political and business elite there with the message that South Africa is serious about rooting out corruption, and that renewal is taking place in the country.
On Saturday, meanwhile, the day before Ramaphosa left for Davos, the Presidency in a media statement had announced the appointment of a new board at cash-strapped state-owned enterprise Eskom.
The statement quoted Ramaphosa as saying that the “intervention” – which also called on the new board to “immediately remove all Eskom executives who are facing allegations of serious corruption” would strengthen Eskom’s corporate governance.
“We are determined to address the damage that has been done to this institution and place it on a new path of efficiency and integrity,” said Ramaphosa.
On Tuesday Lagarde said she had a “fruitful discussion” with Ramaphosa.
“We concurred that long-standing structural challenges continue to weigh on growth in South Africa. We consequently agreed that bold and timely reforms are needed to create an environment conducive to job creation and less inequality," she said.
She said that recent initiatives “improve governance and strengthen public institutions” were steps in the right direction.
“These efforts need to be sustained and be complemented both by fiscal policies that stabilise debt at manageable and sustainable levels, and by the reestablishment of business confidence to make the economy more productive and competitive,” she said.
Next resistance level
Bishop said after breaching the 12/$ level, the next key resistance level would be R11.70 to the greenback.
She added that risks for rand weaknesses remained, however.
“The budget on 21 February 2018 will be watched by the rating agencies for both fiscal consolidation and the avoidance of excessive tax hikes that strangle economic growth.
“Moody’s, the last key agency which has SA on investment grade, is set to deliver a downgrade after the budget if the above priorities are not met, and if insufficient progress has been made on SOE governance reform.”
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