Fraud U-turn strengthens Gordhan's hand

Johannesburg – The National Prosecuting Authority’s (NPA) decision to drop fraud charges against Finance Minister Pravin Gordhan had a huge bearing on the rand strengthening on Monday, said analysts.

When markets opened on Monday, the rand was trading at R13.81/$. It then reached levels as low as R13.60/$ as NPA boss Shaun Abrahams announced the dropping of fraud charges against Gordhan and his two co-accused Oupa Magashula and Ivan Pillay.

“The rand is firming up because faith is being restored in the justice system,” said Petri Redelinghuys, independent trader and founder of Herenya Capital Advisors.

He added that international feeds have also attributed the strength of the rand to the NPA’s decision.

Chief economist at Stanlib, Kevin Lings, shared these views. He said the decision would impact Gordhan’s ability to deliver on the measures introduced in the mini budget to grow the economy.

“This increases his ability to implement policy.”

Lings explained that Gordhan has a crucial role to play in implementing policy that can boost economic growth. This ensures consistency in senior leadership roles. 

READ: Rand rallies as NPA drops Gordhan charges 

Lesiba Mothata, chief economist at Investment Solutions, said that the strengthening of the rand is not solely attributable to the NPA’s decision. He reckoned that the rand’s movements are a further reflection of what is happening in emerging markets.

The market is “taking cues” from what is happening internationally in Asia and Australia.

Global factors show there is general weakness in equity markets, he said. The Hang Seng and Nikkei were both down. The All Share Index (Alsi) was down 0.3%, at the time Mothata spoke to Fin24. 

However, the currency is also taking cues from what is happening domestically.

“There is greater sensitivity in the financial index towards issues around the minister,” he said.

The rand has been strengthening since the beginning of the year and the trend is expected to continue, said Redelinghuys.

Over the next six to 12 months, the rand could reach levels as low as R12.50/$, he added.

Over the short term the rand is expected to strengthen, said Lings.

However, the credit rating decisions and the possibility of a hike by the US Federal Reserve Bank (Fed) may add pressure to the rand.

“We must be cautious to interpret this good news as sustained improvement for the rand. The currency remains volatile.”

On a purchasing power parity (PPP) basis, the rand should trade at R12.50/$ in the long term, or three to five years, said Mothata.

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