Johannesburg – The rand strengthened the most in almost a month, leading global gains against the dollar, after senior members of the ruling party called for President Jacob Zuma to step down and the country avoided a downgrade from two ratings companies.
The rand climbed as much as 2.8% and was 3% stronger at 13.73/$ by 12:00 on Monday, heading for the biggest gain since October 31. The rand gained the most among 31 major and emerging-market currencies tracked by Bloomberg. Benchmark government rand bonds due December 2026 rose, driving the yield down by 21 basis points to 8.88 percent, the biggest decline in five months.
A move to oust Zuma, whose administration has been plagued by allegations of corruption and mismanagement, had significant support in the African National Congress’s National Executive Committee (NEC), said a senior ANC official, who spoke on condition of anonymity. South Africa escaped a debt downgrade by Fitch and Moody’s Investors Service on November 25, also boosting the currency. Emerging-market assets gained on Monday as the dollar declined.
“Some in the market might be speculating about the potential for Zuma’s run as president to come to an end sooner rather than later,” said Jana van Deventer, an analyst at Johannesburg-based ETM Analytics. “We’re a bit skeptical about speculating too much on that outcome at this point in time, but the markets nevertheless seem to be riding that speculative wave.”
The rand gained 2.7% to 14.5560 per euro, a three-week high. It advanced 3.2% against the pound to 17.0547, strengthening the most since the Brexit referendum result was announced on June 24.
A negative outcome for South Africa from S&P Global Ratings, which like Fitch rates the country at the lowest investment grade and publishes its report on December 2, could weigh on the currency, Van Deventer said.
“We are skeptical about how far this rand rally can run, especially since we still have S&P that needs to deliver their credit review for South Africa on Friday and they tend to be more strict when it comes to assessing a country’s underlying credit metrics,” she said.
Zuma survived the most serious challenge to his leadership yet, after a contingent of top officials failed to force him from office during a meeting of the ruling party’s NEC.
The committee, which ended a three-day meeting late on Monday, said that the top six members of the ruling African National Congress would discuss Zuma’s fitness to remain president before a consultative conference next year, two members of the committee who were at the meeting said on condition of anonymity. The committee, the most powerful party body between national conferences held every five years, has the power to order Zuma to resign as president of the country, not as leader of the ANC.
Zuma’s seven-year tenure as president has been marred by a succession of scandals and policy missteps that have weighed on the rand and put the nation’s investment-grade credit rating at risk. While Zuma, 74, has survived several previous challenges to his leadership, the fact that members of his own cabinet have openly turned against him is the clearest sign yet that his grip on power is slipping. He’s scheduled to step down as the ANC’s leader in December next year and his second term as president ends in 2019.
“Although Zuma lives another day, his power is clearly waning,” Anne Fruhauf, vice president at New York-based risk adviser Teneo Intelligence, said by e-mail. “Investors are concerned that the president may go for broke in the wake of the bruising NEC meeting. A cabinet reshuffle seems almost inevitable.”
Tourism Minister Derek Hanekom on Saturday proposed the motion of no confidence in Zuma. Those also calling for him to step down were Health Minister Aaron Motsoaledi, Public Works Minister Thulas Nxesi, Science and Technology Minister Naledi Pandor, and Jackson Mthembu, the ANC’s chief whip in Parliament, Johannesburg-based broadcaster eNCA reported, without saying where it got the information.
The rebellion within the ANC comes almost a month after former Public Protector Thuli Madonsela released a report indicating that Zuma may have allowed members of the Gupta family, who are his friends and in business with his son, to influence cabinet appointments and the awarding of state contracts. Zuma denies the allegation and is challenging Madonsela’s findings in court.
In March, the Constitutional Court ruled that he violated his oath of office by refusing to repay taxpayer funds spent on upgrading his private home. In August, the ANC suffered its worst electoral performance in a local government vote, losing control of the capital, Pretoria, and the economic hub of Johannesburg.
South Africa moved closer to a junk credit rating after Fitch on Friday changed the outlook on its assessment to negative from stable and said that continued political instability could result in a downgrade. Political risks to the standards of governance and policy making have increased and will remain high at least until the ANC leadership election in December next year, Fitch said in an e-mailed statement. Moody’s Investors Service left the country’s rating at two levels above non-investment grade.
“The ANC National Executive Committee is no longer insulated or seemingly impenetrable to pressures from the ANC branches and formations in opposition to Zuma,” said Daniel Silke, director of the Political Futures Consultancy in Cape Town.
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