The South African rand has once again crashed as it loses most of the gains it had made since the end of January and according to Standard bank research, it is due to the political clash between the SARS commissioner and the finance Minister, Pravin Gordhan.
Adam Phillip of Umkhulu consulting said on Monday that the tussle between the finance minister and Moyane “threatens to hand us a downgrading quicker then we think” and that the economy might find itself in a total doom if it is allowed to continue.
“A third strike could spell disaster for us all,” Phillips said. “It might be that we see some nervous end of month selling, but for proper selling we would need some direction from our leader, not just certain members of the ANC executive,” he said.
Rand Merchant Bank economist John Cairns further added that Friday’s rand losses can mostly be explained by Pravin’s rift with Moyane. “Talk is that one of the parties will have to go,” he said on Monday. “The market fears it will be Pravin,” he added.
Explaining how the current fight between Zuma and the Finance Minister would affect the economy, Economist Dawie Roodt said the rand and bond markets weakened after the “so-so budget” but the rift between Zuma and Gordhan could lead to “all sorts of bad things”.
“There is only one variable now that stands between us and a possible [rating] downgrade and that is economic growth. How is the spat between Zuma and Gordhan going to affect potential economic growth? This is a proxy war. Let’s be honest about this. It’s going to affect economic growth via political uncertainty and possible policy uncertainty,”
“If they don’t sort this out soon . like really soon, within a week or two, then the rand will weaken and a weaker currency will become entrenched and then it leads to weaker economic growth and this will lead to an automatic downgrade. There is a lot at stake at the moment,” he said.
The rand weakened on Friday, closing at R16.16/$, compared to Thursday’s close of R15.60/$. It had improved somewhat by Monday at 10:00, trading at R16.12/$.
Rand Merchant Bank economist Deon Kohlmeyer stated that the local bond market followed suit on Friday, with the close on the R186 at 9.44% after opening the day at 9.22%.
“Over the weekend USD/ZAR touched a high of around 16.30 but has since retraced to near the 16 level by this morning,” he said.
“This week the rand will again be the driving force behind bond yields, with some local data to add some fundamental flavour to proceedings,” he said. “Friday’s moves may have been exacerbated by thin liquidity, but the ease with which the rand moves weaker does not bode well for the currency going forward.”
Cairns pointed out that further large swings in the rand should be expected “With confidence so low it will not take much to trigger a further run.”
President Zuma who had been warned to show his support for Finance Minister to salvage the country’s economy, had said on Friday that he will not interfere with an SA Revenue Service (Sars) commissioned investigation by the Hawks into a ‘rogue unit’ that allegedly operated while Pravin was commissioner at SARS.
Tom Moyane, who is the current Sars commissioner, has been in an argument with Pravin over restructuring plans ought to undo the well-oiled Sars machine that Pravin spent years building.
Pravin reported on Friday that an unidentified group of people were out to disrupt the economic stability of the country and the welfare of its people and Moyane who is reports directly to finance minister is also known to be a close friend of President Jacob Zuma
However, economists have continued to hammer the need for the president to intervene in the crisis by supporting his finance minister if not, the rand would weaken further, the country’s sovereign debt rating would collapse to junk status and ordinary South Africans would struggle to buy food.
According to NKC Resarch, by falling beyond its R16/$, the hopes of correcting the rand to below R15/$ has been dashed out and its all because of the political fracas in the country.
“While we continue to gauge the rand as being undervalued, we will need to see a string of data improvements in coming quarters for there to be a chance of sentiment reversal anytime soon,” it said. “Expect the range on the SA currency this week to be between R15.85/$ and R16.45/$.” he added.
Meanwhile, the Standard Bank Research stated that added to the boiling crisis, US data didn’t help the rand’s losses either. “Although we would not be surprised to see the rand regain some of its losses from Friday, the market is now likely to be much more nervous about sudden rand reversals.”
The bank said GDP growth is expected to have slipped to 0.5% in Q4:15 from 1.0% in Q3:15, in annualized growth. What might however be affecting the rand this week is the reaction after Stats SA announces its latest gross domestic product figures on Tuesday.