Rand hits seven-month low as cabinet delay fuels reform concerns

The rand slumped to a seven-month low as an unexpected delay in the appointment of the cabinet stoked concerns President Cyril Ramaphosa is facing opposition to his reform agenda.

The currency’s slide on Tuesday started when the ruling African National Congress confirmed David Mabuza would be sworn in as a lawmaker, opening the way for him to be reappointed as deputy president. It gathered momentum as investors speculated about the composition of the executive. That would be announced this week, the government said at the weekend, without giving a specific date.

Mabuza, 58, was linked to a succession of scandals while he served as premier of the eastern Mpumalanga province, though he denied the allegations and has never been charged. Still, his reappointment could set back Ramaphosa’s efforts to repair the reputational damage to the party after his predecessor Jacob Zuma’s scandal-marred nine-year rule. The delay in the appointment of the cabinet suggests Ramaphosa’s isn’t having it his own way as he negotiates with factions within his party.

Read: Why Ramaphosa had to delay appointing next cabinet

“Investors worry that Ramaphosa will not be able to root out corruption from the top echelons of the government as promised, endangering his reform agenda,” said Per Hammarlund, the Stockholm-based chief emerging-market strategist at SEB AB. The rand could reverse declines if Mabuza shows commitment to reform measures, he said.

The rand dropped as much as 2.2% and traded 1.9% weaker at 14.70 per dollar by 5:05 pm in Johannesburg, hitting its weakest level since October and leading emerging-market currency declines. Yields on benchmark 2026 government rand bonds rose six basis points to 8.45%.

“Buy the rumour and sell the fact is in full effect right now,” said Wichard Cilliers, a trader at TreasuryOne in Johannesburg. “It’s putting the rand under pressure because investors thought there was a chance that the cabinet would be cleaner. But we need to see the official news about Mabuza, the real deal about what his role will be.”

It’s been a difficult May for developing-nation currencies in general due to a risk-off environment sparked by the uncertainty around a US-China trade deal. Even so, the rand is underperforming its peers, weakening 2.2% month-to-date compared with the 1.4% drop for the MSCI EM Currency Index. Foreign investors have sold a net R6.1 billion of government rand bonds this month, according to JSE data.

“It is indeed local factors and politics that seem to be the main culprits,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “Foreigners are still cautious and the latest developments on the appointment of the deputy president should not help foreign appetite.”

© 2019 Bloomberg L.P