Rand resumes its fall in wake of shocking news on growth

The rand weakened anew on Wednesday morning, suggesting markets may not have fully absorbed Tuesday’s poor GDP figures.

The currency had rebounded earlier from Tuesday’s sharp losses. The shock 2.2% contraction in SA’s gross domestic product in the first quarter was a reminder of the big task that lies ahead for President Cyril Ramaphosa.

Continued weak growth could undermine SA’s fiscal position, leading to further sovereign rating downgrades.

“In our view, Ramaphosa has done well on many fronts in his first few months as president,” NKC African Economics analysts said in a note.

“However, momentum needs to be maintained and more needs to be done, particularly addressing uncertainties around the land reform debate as well as the pending Mining Charter, both of which are keeping investment hostile at this stage.”

To date, Ramaphosa has been able to shake up state-owned entities (SOEs) through the appointment of new boards and management, aimed at restoring good corporate governance and restoring them back to sound financial health.

Some SOEs have been hotbeds of state capture, which Public Enterprises Minister Pravin Gordhan recently estimated has cost the state R100bn.

But analysts and economists says SA still needs to implement structural reforms that would enable it to improve economic growth and so address socioeconomic challenges.

Growth in the first quarter was dragged down undermined by agriculture, mining and manufacturing.

Standard Bank trader Warrick Butler said: “The fact that we, as a country, continue to struggle to grow in correlation to the rest of the world, which has seen a pick-up in global economic growth, is a testament to the size of the task the ruling party and our new president has on their hands.”

The recent volatility in global markets has also contributed to deflating the optimism, dubbed “Ramaphoria”, that followed Ramaphosa becoming president of the country in February.

The volatility has helped to increase the chances of inflation picking up, meaning the Reserve Bank is less likely to cut interest rates any time soon.

Local bonds were also weaker in early trade, with the yield on the benchmark bond fetching 8.66%, from 8.64% at its last settlement.

At 10.04am, the rand was at R12.8022 to the dollar from R12.7638, R15.0595 to the euro from R14.9553, and R17.1859 to the pound from R17.1037. The euro was at $1.1763 from $1.1718.