South Africa’s rand headed for its biggest weekly slide since 2015 and bonds plunged, after the firing on Thursday of finance minister Pravin Gordhan raised concerns about the nation’s fiscal path and its investment-grade credit rating.
The rand dropped 1.3 percent to 13.4548 per US dollar as of 8:31am yesterday in Johannesburg, the lowest in seven weeks.
The currency was falling for a fifth day, the longest losing streak since August last year.
Photo: AP
Benchmark 10-year government bonds tumbled the most in seven months, sending the yield soaring by 42 basis points to 8.93 percent.
The rand was one of the top three emerging-market currencies last year and early this year, but politics is again casting a cloud over the nation’s assets.
Gordhan had fended off a downgrade in South Africa’s rating to junk, and his commitment to curb spending and government debt had endeared him to investors.
He clashed with South African President Jacob Zuma over the affordability of building nuclear power plants and the management of state-owned companies.
“Market reaction to the Cabinet reshuffle and what looks to have been a clean sweep of the Treasury top team is going to be a significant negative,” Razia Khan, chief Africa economist at Standard Chartered PLC, said in an e-mail. “Given past volatility in the rand when a Cabinet reshuffle was even suggested, the expectation is that the impact may be more pronounced now.”
Zuma replaced Gordhan with Minister of Home Affairs Malusi Gigaba, the presidency said in a statement yesterday.
African National Congress (ANC) lawmaker Sfiso Buthelezi took over from Gordhan’s deputy, Mcebisi Jonas.
A group of the nation’s leading chief executives said that Gordhan’s dismissal would have severe consequences for the economy and was a setback to the work done to avoid a credit ratings downgrade.
South Africa’s Banking Association said that changing the finance minister and deputy finance minister raised “alarming concerns” over fiscal discipline.
ANC General Secretary Gwede Mantashe also said in a radio interview that the process followed to axe Gordhan and eight other ministers made him “jittery and uncomfortable.”
Moreover, ANC ally the South African Communist Party said that the firing of Gordhan risked triggering the looting of the Treasury.
The rand was heading for a 7.6 percent loss for the week — the worst such performance since the last time Zuma rocked markets by firing his finance minister.
Back in December 2015, it was Nhlanhla Nene’s ouster that hurt confidence — an episode that ended with Zuma bringing back the respected Gordhan to office.
Politics aside, the generally positive environment for emerging markets — and synchronous pickup in global economic growth — should favor South Africa, with its mining assets.
Its currency enjoyed a 12.6 percent jump against the US dollar last year — behind only Brazil’s real and Russia’s ruble among emerging markets, according to data compiled by Bloomberg.
“The annoying, frustrating thing from the South Africa perspective is that you don’t want political worries now, because things are trending up, things are picking up,” Moz Afzal, global chief investment officer at EFG Asset Management, said in an interview in Singapore.
“South Africa is pretty much in the penalty box” for investors now, he said.
Zuma’s office said the new ministers and deputy ministers were to be sworn in at 4pm GMT yesterday.
Additional reporting by Reuters
NOT JUSTIFIED: The bank’s governor said there would only be a rate cut if inflation falls below 1.5% and economic conditions deteriorate, which have not been detected The central bank yesterday kept its key interest rates unchanged for a fifth consecutive quarter, aligning with market expectations, while slightly lowering its inflation outlook amid signs of cooling price pressures. The move came after the US Federal Reserve held rates steady overnight, despite pressure from US President Donald Trump to cut borrowing costs. Central bank board members unanimously voted to maintain the discount rate at 2 percent, the secured loan rate at 2.375 percent and the overnight lending rate at 4.25 percent. “We consider the policy decision appropriate, although it suggests tightening leaning after factoring in slackening inflation and stable GDP growth,”
DIVIDED VIEWS: Although the Fed agreed on holding rates steady, some officials see no rate cuts for this year, while 10 policymakers foresee two or more cuts There are a lot of unknowns about the outlook for the economy and interest rates, but US Federal Reserve Chair Jerome Powell signaled at least one thing seems certain: Higher prices are coming. Fed policymakers voted unanimously to hold interest rates steady at a range of 4.25 percent to 4.50 percent for a fourth straight meeting on Wednesday, as they await clarity on whether tariffs would leave a one-time or more lasting mark on inflation. Powell said it is still unclear how much of the bill would fall on the shoulders of consumers, but he expects to learn more about tariffs
Greek tourism student Katerina quit within a month of starting work at a five-star hotel in Halkidiki, one of the country’s top destinations, because she said conditions were so dire. Beyond the bad pay, the 22-year-old said that her working and living conditions were “miserable and unacceptable.” Millions holiday in Greece every year, but its vital tourism industry is finding it harder and harder to recruit Greeks to look after them. “I was asked to work in any department of the hotel where there was a need, from service to cleaning,” said Katerina, a tourism and marketing student, who would
i Gasoline and diesel prices at fuel stations are this week to rise NT$0.1 per liter, as tensions in the Middle East pushed crude oil prices higher last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices last week rose for the third consecutive week due to an escalating conflict between Israel and Iran, as the market is concerned that the situation in the Middle East might affect crude oil supply, CPC and Formosa said in separate statements. Front-month Brent crude oil futures — the international oil benchmark — rose 3.75 percent to settle at US$77.01
RSS