Cape Town - President Jacob Zuma's removal of Finance Minister Nhlanhla Nene is an indication that market considerations and sensitivities "have been thrown out the window", said Nomura International emerging markets economist Peter Attard Montalto on Thursday.
"For me this is the acceleration and intensification of the ANC trying to move away from market considerations and market financing towards official and quasi-official financing," said Montalto.
This comes as President Jacob Zuma's surprise announcement to replace Nene with the largely unknown David van Rooyen has sent shock waves throughout SA.
China’s announcements of $60bn investments in Africa, of which a significant chunk has been earmarked for South Africa, "together with Brics and other loans for Eskom, etc" have generated a strong view within the ruling party that it need not worry so much about credit ratings, and that it also does not have to pay so much attention to market financing.
"This is a deeply misguided view," said Montalto. "Yes, you can remove some degree of current account risk in such a model, but widespread and vibrant FDI (foreign direct investment) is not possible under such a model and so there is still no job creation."
The South African Reserve Bank can no longer be seen as "sacrosanct", said Montalto. However, he pointed out that governor Lesetja Kganyago's "tenacity and drive... to protect the independence of the institution through any means necessary, including constitutional court action" should not be underestimated.
"They would have a serious fight on their hands. We must watch for mandate changes," he added.
Montalto said a 50- or even 100 basis-point interest rate increase is possible in January, depending on the rand and outflow moves.
In a strongly-worded response to Nene's dismissal, Montalto said shortly after Zuma made the announcement on Wednesday evening that he views Zuma's move as a "classic case of political balancing".
"Even if growth, structural reforms and ratings issues feature on the leadership’s lists of issues – politics simply trump these," said Montalto.
He added: "... we view this prioritisation of political issues over reforms as the reason that SA is firmly on the path to junk status". This could happen at the end of 2016 and in early 2017, according to Montalto.
In reaction to Nene's dismissal, the rand plunged to near record lows and was trading at R15.08 per dollar shortly before 11:00.