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Gigaba assurance boosts the rand

Currencies
Johannesburg - The rand on Thursday strengthened further against a weakening United States dollar, boosted by slowing inflation and reassurances by Finance Minister Malusi Gigaba that the government does not plan to nationalise the country’s mines and banks.

At 6.50am the rand had gained 0.36 percent to R13.2300 per dollar, its firmest level since March 31, compared with an overnight close of R13.2775 in New York.

The currency plunged as low as R13.9800 to the dollar on April 10 after a cabinet reshuffle prompted ratings agencies Standard & Poor’s and Fitch to downgrade the country’s sovereign credit rating to sub-investment grade.

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File picture: Waldo Swiegers, Bloomberg

The currency was trading at R13.16 to the dollar at 5.05pm yesterday.

“Global short-term pressures on the rand have eased,” RMB global markets analyst John Cairns said in a note. The dollar was weakening sharply because the market was reassessing the outlook for the US economy, Cairns said.

“It is too early to say that the market has found a new post-downgrade level. And there remains a lot on the political front that will shock,” Cairns said.

Nedbank chief economist Dennis Dykes attributed the rand’s resilience to the weaker dollar, which he said has come under pressure because of doubts over President Donald Trump’s ability to deliver on his programme aimed at stimulating the US economy.

Pound boosted

On the other hand, British Prime Minister Theresa May’s call for a snap general election in June has boosted the pound, Dykes said. The pound soared to new highs soon after May’s shock announcement this week.

The election is expected to strengthen May’s hand in negotiations over the United Kingdom’s withdrawal from the European Union, increasing the chances of a smoother exit. “As a result, some money is flowing there,” Dykes said.

Read also: Gigaba reins in controversial Prof Malikane

On Wednesday, data showed that South African inflation slowed to 6.1 percent in March, and Gigaba moved to reassure investors after his newly appointed adviser, Chris Malikane, called for the nationalisation of the banks and mines. Speaking ahead of his trip to the US this week, Gigaba said he would reassure ratings agency Moody’s that the recent cabinet reshuffle would not result in changes to government policy.

Moody’s earlier this month placed South Africa’s sovereign credit rating on review for a possible downgrade.

On Wednesday, S&P Global Ratings warned that South Africa’s credit rating could be downgraded deeper into “junk” territory if ongoing political uncertainty stalls the reforms required to grow the economy.

“Of the big countries, that’s the one that has more risk attached to it politically, even more so than Turkey. In Turkey, there is certainty; in South Africa, there isn’t. They need a very stable government with a very clear policy, and they don’t have that. As long as we have a country that is driven by the internal politics of the ANC, I don’t see how it can get any better,” Daniel Moreno, an emerging markets debt fund manager at Rubrics Asset Management, said.

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