Rand loses 5% of value overnight after reshuffle

0
675

Edgar Brandt

Windhoek-The South African rand, and by extension the Namibia dollar, lost five percent of its value overnight immediately after President Jacob Zuma fired the widely respected Pravin Gordhan and set off an outcry by many in South Africa’s ruling party, the African National Congress, as well as opposition parties.

“The rand’s five percent depreciation overnight reflects negative market sentiment with respect to the cabinet reshuffle and any further deterioration is likely to exert pressure on the currency. A weaker currency would increase import costs resulting in higher than expected inflation which impedes the reserve bank’s ability to lower interest rates, and would prolong the tepid economic environment,” commented Ngoni Bopoto, research analyst at Namibia Equity Brokers.

Also commenting on the cabinet reshuffle in South Africa last week, Claudia Boamah, economic analyst at Capricorn Asset Management, in her regular morning brief warned that Jacob Zuma’s presidency is yet again under threat as yet another call for a vote of no confidence has been made against him. This would be the fifth motion to remove Zuma as president since he began his term in 2009.

“Previous attempts failed because the ANC controls the majority vote that is required to pass the motion but one cannot fault the opposition for trying once again. This time seems different. Since Pravin Gordhan was fired last week, high ranking individuals within the party began voicing their displeasure with President Zuma’s reshuffle. Victory this time around is more likely because the ANC’s majority might be broken. The ZAR is proving to be resilient as it continued to trade below 14.00 ZAR/USD at R13.44,” said Boamah.

In his recent Monetary Policy Committee (MPC) statement, the South African Reserve Bank (SARB) Governor, Lesetja Kganyago, noted: “However, the recent heightened domestic political uncertainty has reversed some of these exchange rate gains, and the risk of further rand weakening overshadows the inflation outlook … Overall, the MPC assesses the risk to the inflation outlook to be moderately on the upside, mainly due to the high degree of exchange rate uncertainty. The MPC sees no evidence of significant demand pressures impacting on inflation. The growth outlook remains disappointing, and the MPC is concerned that increased political uncertainty could impact negatively on private sector investment and household consumption expenditure, and further undermine employment growth. The risks to the growth outlook are therefore assessed to be on the downside. In light of these developments the MPC has decided to keep the repurchase rate unchanged at 7.0 percent per annum,” said Kganyago.

According to South African media reports, former finance minister Gordhan had been under severe attack from Zuma supporters for his reluctance to endorse excessive expenditure demands and he was seen as a stumbling block by many that stood to benefit from mega-projects, the biggest of which is a R1 trillion nuclear deal.

“The cabinet reshuffle can therefore be viewed as a desperate bid by the Zuma faction, and associated beneficiaries such as the Gupta family, to drive the pro-nuclear agenda.

The expectation is that the nuclear procurement plan will now receive the National Treasury’s blessing and will be given the go-ahead. This is despite the dangerous financial burden it would impose on the country, and the massive resultant debt repayment obligations,” read a report by eNCA.

LEAVE A REPLY

Please enter your comment!
Please enter your name here