Rand to weaken if status quo remains

By Isabelle Coetzee

After the Rand strengthened in December with the election of Cyril Ramaphosa as the president of the African National Congress (ANC), one critic believes it may weaken if change is not enacted.   

“What we have heard so far from Ramaphosa is not majorly different from where we have come, and the Rand could weaken if the status quo is maintained,” said Andre Botha, dealer at TreasuryONE.  

“The political playground has caused the Rand to be very volatile, and it could move sharply on the back of headlines and possible political moves,” he added.

Botha explained that the average South African would be affected by a weakened Rand, since it would lead to higher inflation which would result in interest rate hikes.

Besides this, the strength of the Rand also impacts the fuel price. Since oil is at a multi-year high, consumers can expect higher petrol prices if the Rand weakens, and vice versa. 

As a result, all eyes have been on Ramaphosa and his next move.

Non-political factors: downgrades and investors  

However, Botha explained that – although Ramaphosa’s victory is significant – the recovery of the Rand started before his election.

Botha believes the stronger Rand was also a result of “the fact that we were not downgraded by both S&P and Moody's, and only by one of them”.   

Another factor that had a positive impact on the Rand is the attention it received from international investors.  

“Developed markets don't have the desired yield for investors and they would rather invest in emerging markets where the yield is a lot higher – like South Africa,” said Botha.

This shows that the Rand may continue to strengthen for non-political reasons, but the political landscape will nonetheless have an impact on the Rand.

Zuma’s influence: not as strong

Besides the direct action of Ramaphosa, the ANC’s decision about president Jacob Zuma will likely result in the next nudge to the Rand.

“We expect that the market has priced in the possible removal of president Zuma,” said Botha.

“Should that happen we expect the Rand to strengthen but not by the percentages that people expect,” he added.  

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