Rand records worst week since February’s power cuts
The rand lost 2.56% against the dollar, the biggest weekly loss since mid-February when Eskom implemented stage 4 load-shedding
Despite a slight recovery late on Friday, the rand posted its worst weekly performance since the country was hit by electricity blackouts in February.
The local currency broke through R15/$ on Thursday as conflicting statements from the ANC about the mandate of the Reserve Bank fuelled speculation around political uncertainty. On Tuesday, ANC secretary-general Ace Magashule said the party wanted to expand the role of the Bank to include job creation, and to explore the use of quantitative easing.
President Cyril Ramaphosa said on Thursday, however, the mandate of the Reserve Bank would not be altered. Ramaphosa spoke out on the matter after finance minister Tito Mboweni and the ANC’s head of economic transformation, Enoch Godongwana, also contradicted Magashule’s utterances.
“It basically cements the fact that there is infighting in the ANC. There are two factions [in the party] fighting an ongoing battle for control and that leads to instability and fear,” Herenya Capital Advisors co-founder Petri Redelinghuys said.
By 5.30pm the rand had lost 2.56% against the dollar, its biggest weekly loss since mid-February, when Eskom resorted to stage 4 load-shedding due to generation shortages and diesel supply constraints; the rand lost 3.3% that week. The power cuts had a severe effect on the mining and manufacturing sectors in the first quarter of 2019, with output falling 3.4% and 2.4%, respectively.
Pressure was added to the rand rand earlier this week by poor economic data. First-quarter GDP contracted 3.2%, raising questions about whether the Bank would be forced to cut interest rates at its next monetary policy committee meeting in July. The SA Chamber of Commerce and Industry business confidence index fell to 93 points in May from 93.7 in April and the IHS Markit purchasing managers' index fell to 49.3 points in May from 50.3 in April.
“At a time when the country is reeling from poor local economic performance, policy certainty and government stability become crucial fundamental elements to stimulate the economy and create desperately needed jobs,” treasury partner at Peregrine Treasury Solutions Bianca Botes said in a note on Friday.
At 3.35pm, the rand had weakened 0.17% to R15.0255/$, 0.52% to R17.0003/€ and 0.51% to R19.1367/£. The euro was up 0.34% to S1.1314.
Gold was 0.56% higher at $1,342.9/oz and platinum 0.56% to $806.02. Brent crude was down 0.64% to $61.84 a barrel.