An early exit for Zuma could send the rand to R11/$
An early exit of President Jacob Zuma could see the rand strengthen to R11.70 per dollar, lowering fuel prices and in turn inflation, Investec Bank economist Annabel Bishop said in note e-mailed on Monday morning.
The rand, which strengthened to R12.04/$ following the ANC’s leadership decision on Friday night that Zuma should step down without setting a deadline, was trading at R12.07/$ at 11.20am on Monday.
Bishop said the rand was likely to move towards R11/$ "providing that Cyril Ramaphosa can assume [the] presidency of SA without any conditions that hamper his ability to follow the free market reforms necessary to avoid credit rating downgrades, eradicate corruption and deliver rapid economic growth".
Substantial further rand strength would cause fuel price cuts and place downward pressure on inflation as measured by the annual change in the consumer price index (CPI), Bishop said.
Statistics SA is scheduled to release December’s CPI figures at 10am on Wednesday. December’s hefty 71c/litre price increase is expected to have caused the annual change in CPI to have accelerated from November’s 4.6%, but a poll of economists by Trading Economics found the consensus was the strengthening rand limited the rise in inflation to about 4.7%.
"The rand recently strengthened first on Ramaphosa’s election to ANC president, then on the increasing likelihood of a Zuma exit from the presidency of SA, which has mitigated the strength of the oil price for SA’s fuel prices. The announcement of a new board at Eskom also cheered the local currency as the utility is seen to risk default," Bishop said.
"The rand could move towards R10 per dollar if the up case becomes a growing reality under a truly growth and credit positive Ramaphosa presidency of SA."