Johannesburg - The rand nose-dived yesterday, hitting a fresh seven-month low of R11.22 against the dollar, as investors worried that a week has gone by without President Jacob Zuma naming the successor to Reserve Bank governor Gill Marcus.
“It could be argued that the fact that the Presidency is delaying an announcement in this regard is now beginning to weigh on confidence in the South African currency,” leading economist Azar Jammine of Econometrix said.
Marcus stunned markets last Thursday when she revealed that she would not be extending her tenure for a second term when her current five-year contract expires on November 8. Although speculation about who might succeed her has initially centred on her two deputies – Lesetja Kganyago and Daniel Mminele – analysts have not ruled out the possibility of Zuma appointing an outsider.
Following what was her last monetary policy committee (MPC) meeting, Marcus said the president had a “strong talent pool” at the bank from which to choose a successor.
Even so, the apparent delay has not sat well with investors, who continued to maul the currency yesterday.
The rand has depreciated by about 2.5 percent against the dollar since just before last week’s MPC meeting.
Jammine said the delay could well suggest that the government was looking at an appointment outside of the existing structure of the Reserve Bank.
“In turn, this alludes to the possibility that the government perceives the above-mentioned existing deputy governors as being technocrats incapable of, and for that matter possibly even opposed to, toeing the government’s preferred monetary policy line,” Jammine said. “Any such perceptions are unwelcome in the minds of investors, especially foreign investors whose actions determine the rand’s performance.”
The uncertainty around the Reserve Bank is the last thing that South Africa needs, especially as the country grapples with stubbornly high unemployment, the residual effects of the recent mining strike, a ballooning current account deficit, the funding crunch at power utility Eskom, anaemic economic growth and the possibility of a sovereign rating downgrade.
Finance Minister Nhlanhla Nene tried to downplay the Reserve Bank succession issue yesterday, telling reporters in Pretoria that the Zuma administration was not under pressure to name Marcus’s successor, and that the announcement would be made “in due course”.
Jannie Rossouw, the head of the Witwatersrand University’s school of business and economic sciences, said: “There is no doubt that the external value of the rand has suffered owing to the delay in the announcement of the name of the new governor. This delay has increased uncertainty and markets do not like uncertainty.
“Delaying the announcement has done unnecessary harm to the economy. The president, who is responsible for the announcement, owes the country an explanation for this unnecessary delay. He knew five years ago that Marcus’s term in office will expire in November as she was appointed for five years in 2009.”
Marcus is known for having been generally outspoken about the apparent government policy disjunctures, at one time saying that the country’s economy was held hostage by structural problems which the bank had no tools to address, unlike the government.
While Marcus has shed no light on why she thought this was the time to leave, analysts have suggested that her frankness might have alienated her from the government.
“We also think within the ANC the race of senior economic leadership has been an increasing issue after the election, as well as resistance to rate hikes to some degree, but particularly resistance to her rhetoric on the problems South Africa faces,” Peter Attard Montalto, an emerging market economist at Nomura in London, wrote in a note following Marcus’s announcement.
A new governor would have to steer the economy through what increasingly looks like stagflation, where inflationary pressures are colliding with stalled growth to create a headache for policymakers.
In deciding to keep interest rates unchanged last week, the bank’s MPC acknowledged that tepid growth remained a major concern. The bank cut its 2014 growth estimate further to 1.5 percent from 1.7 percent.
In the second quarter South Africa narrowly escaped sliding into recession as the economy expanded by 0.6 percent following a contraction of a similar magnitude in the first quarter. By 6.30pm yesterday the rand was at R11.19, having halted some of the slide that took it as low as R11.22 in the early afternoon . – With additional reporting by Dineo Faku.
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