Johannesburg - The rand remained on a steadier footing against the dollar on Monday as support for embattled Finance Minister Pravin Gordhan intensified, with business leaders joining Deputy President Cyril Ramaphosa in expressing their support for him.
The rand reached R14.1708 by 5pm - paring last week’s losses after opening at R14.2598. The recovery comes after the currency plunged 4 percent to R14.376 last Tuesday when prosecutors ordered Gordhan to appear in court on November 2.
John Cairns, a currency strategist at Rand Merchant Bank, said the rand still remained vulnerable as it did not know what to make of the local political racket. Cairns said the currency had responded by trading sideways in surprisingly low volatility.
“The risks have led to aggressive and continuous foreign selling of local assets and there is surely reduced scope for the reforms needed to avert a downgrade,” Cairns said. “The bigger issue, however, is whether the finance minister stays or goes. This seems less likely after all the support he has received from cabinet ministers and even the deputy president.”
Ramaphosa last week described Gordhan’s recent spat with the National Prosecuting Authority as worrisome to most sectors of the economy. He said he had no doubt that Gordhan remained committed to building a better country for all South Africans.
Cairns said politics would presumably remain the central focus this week, with the key scheduled event being today’s court hearing on whether the public protectors report could be released. He said the noise would remain elevated for the foreseeable future.
“The continuous selling of foreign assets is an indication that foreign investors are worried Gordhan might not last in his job, raising the threat of credit rating downgrades to sub-investment grade,” he said.
Gordhan filed court papers on Friday that implicate President Jacob Zuma’s friends, the Gupta family, and the companies they control in “suspicious transactions” totalling R6.8 billion, signalling an escalation in the battle between the Treasury and the Presidency.
The finance minister has received support from senior government officials and business as he faces fraud charges.
On Monday, business executives rallied behind Gordhan, saying they had full confidence in his abilities to turn around the moribund economy.
The businesses, including former chief executives of Standard Bank and retailer Massmart, lauded Gordhan as an “outstanding” political leader. “We have no doubt about the need for his critical leadership at this time of vital economic importance,” they said. “South Africa’s democratic transformation cannot afford to have a man of Gordhan’s abilities distracted or sidelined.”
The business executives said ratings agencies wanted to see a better economic growth outlook and reforms to sustain faster economic growth over time and improvements in the management of state-owned enterprises.
“The latest developments would cast doubt on this happening. S&P Global Ratings, which has South Africa’s foreign currency bonds on the lowest investment grade rating (BBB-) with a negative outlook, expressed concern last week that politics could interfere with policy.”
Gordhan is due to present the medium-term budget policy statement (MTBPS) next week, but it is unclear whether he will still be at his post.
Dave Mohr and Izak Odendaal, investment strategists at Old Mutual Multi-Managers, said: “The MTBPS will largely be finalised by now, and therefore the content is unlikely to change even if Gordhan was not delivering it. However, this creates uncertainty, and financial markets don’t like uncertainty.”