Rand recovers a little as focus stays on SA’s mounting government debt

The rand was marginally firmer on Monday afternoon, recovering a little from last week’s sharp losses, amid a deteriorating local credit-rating outlook.

The rand had its worst week in five months last week, after agency Fitch Ratings cut its outlook on SA’s debt to negative on Friday, following the announcement of an additional R59bn in support for Eskom over the next two financial years.

The rand began Monday weaker, but recovered a little in the afternoon. Earlier a court suspended public protector Busisiwe Mkhwebane’s remedial action against public enterprises minister Pravin Gordhan, but analysts played down the effect of this, noting that the issue of ratings was front and centre for SA.

While the court ruling was positive for the government, rand strength was more likely due to position squaring after last week’s sharp losses, said Christopher Shiells, a London-based emerging-markets analyst at Informa Global Markets.

The rand had looked set for a short-term recovery, and local fights regarding the public protector remained a “side show”, said Herenya Capital Advisors’ Petri Redelinghuys. Issues around Eskom’s debt and the government’s debt remained predominant.

“Eskom remains the turd in the town well,” Redelinghuys said.

At 2pm the rand was 0.26% firmer at R14.2254/$, up 0.34% at R15.8166/€ and 0.86% stronger at R17.5003/£. The euro was flat at $1.1118.

The rand was also facing some pressure following the release of a report by President Cyril Ramaphosa’s advisory panel on land reform and agriculture, at the weekend. The report recommended that the constitution be amended to allow expropriation without compensation, although it did emphasise the importance of property rights.

“The land issue certainly sits within the mind frame of the international investor but this has by and large been priced in,”  Standard Bank currency trader Warrick Butler said. “The price action and sell-off that we have seen in the rand over the past two days has totally been on the back of the credit agencies. The penny finally dropped I think,” he said.

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