Johannesburg - The rand yesterday hit a two-month low against the dollar and government bonds weakened sharply after reports, denied by the government, that Finance Minister Pravin Gordhan faces arrest.
The reports cited unnamed sources saying Gordhan would be arrested in a case related to the activities of a spy unit formed when he headed the SA Revenue Service (Sars).
Read: Gordhan arrest talk just 'rumours'
Isaiah Mhlanga, an analyst at Rand Merchant Bank, said he took the Presidency at its word on its denial.
“The markets will, nevertheless, remain nervous – sensitivities on this issue are very high and the political dynamics will change after the local government election,” Mhlanga said.
The rand traded at R15.61 versus the dollar at 5.35pm yesterday, its weakest level since March 17.
Ratings fears, however, weighed on South African markets, with an executive of S&P Global Ratings expressing concerns about the country’s dismal growth and reliance on capital flows.
The market reaction to the reports, for all the official denials, has raised concerns of a repeat of the run on the rand and bonds in December after President Jacob Zuma changed finance ministers twice in a week.
The elite police unit, the Hawks, said in March it would investigate Gordhan’s role in setting up a tax-surveillance unit in 2007 when he was the commissioner of Sars.
Gordhan said at the time that the spy unit set up at the tax agency was lawful.
Spy unit
Gordhan is scheduled to hold meetings with rating agencies Fitch and S&P in the next few weeks after Moody’s left its rating of South Africa’s debt at Baa2, two levels above sub-investment grade.
“I think overseas money managers are not going to be happy to see the political scene gather headlines for the wrong reasons again. Especially after things seemed to have settled down a little,” Standard Bank currency trader Warrick Butler said.
FNB said that after the last meeting of the monetary policy committee the rand had depreciated notably and inflation had positively surprised, easing to 6.1 percent in March from 6.3 percent the previous month.
The Reserve Bank hiked interest rates by 25 basis points at its last meeting in March, the fourth consecutive rate increase, and bringing the cumulative interest rate tightening to 200 basis points since January 2014.
Bidvest Bank said: “The decision to hike interest rates would not have come easy when the domestic economy is under particular pressure, and where hawkish Fed risks to this day have been scaled back.”
* With additional reporting by Reuters
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