South African Rand Slumps as Gordhan Breaks Silence on Talk of Arrest, Firing

Johannesburg, South Africa, Capital Markets in Africa: The rand slumped as much as 2 percent against the dollar and bonds fell as concern intensified around the role of South African Finance Minister Pravin Gordhan, who broke his silence over reports that he may be arrested and dismissed.

The rand was 1.7 percent lower at 15.8106 by 12:26 p.m. in Johannesburg, the weakest since March 15 on a closing basis and the worst performance among 31 major and developing nation currencies tracked by Bloomberg. Yields on benchmark government rand-denominated bonds climbed 9 basis points to 9.47 percent, the highest since Jan. 28 on a closing basis.

Gordhan may be charged with espionage and fired following a police investigation of his alleged involvement in a special investigations agency within the national revenue service, the Johannesburg-based Sunday Times reported. In a statement late Tuesday, Gordhan said the reports were “extremely distressing” and that he “would never have thought that individuals within the very agencies of this government would now conspire to intimidate and harass” him and his family.

 “All that political uncertainty is definitely still playing on the rand,” said Wichard Cilliers, a trader at Treasuryone in Pretoria. “That’s the main reason why the rand is struggling and weaker than its emerging market peers.”

The MSCI Emerging Markets Currency Index fell 0.5 percent as the dollar strengthened on prospects for a U.S. interest-rate increase. The rand’s one-week implied volatility rose to the highest since Jan. 11 and the most among its developing nation peers.

Inflows into South Africa’s bond market have halted, removing a cushion that has previously supported the currency. Foreign investors sold a net 2.6 billion rand of bonds Tuesday, the biggest outflow since Jan. 19, data from the Johannesburg Stock Exchange showed.

South African inflation slowed for a second consecutive month in April, Statistics South Africa said Wednesday, leaving room for the central bank todelay more rate increases that would support the rand, Cilliers said. The bank announces its latest decision on interest rates on Thursday, with only six of 25 economists in a Bloomberg survey expecting a third increase this year.

The resurfacing of political tensions comes two weeks before S&P Global Ratings is due to publish its assessment of South Africa’s BBB- credit rating. A Bloomberg survey this month showed 12 of 13 economists expect S&P to cut South Africa to non-investment grade by year-end.

“All those bad factors prevailing two months ago that everybody forgot about, all those factors are back now again,” Cilliers said. “That’s why the rand is back where it was two months ago.”

Source: Bloomberg Business News