… Not for the Rand!
The political overhaul in South Africa is mesmeric. The entrenchment of the previous incumbent regime throughout society, trade and politics was hard to understate. The release of the African National Congress from the grips of Zuma and his family afforded the Rand considerable value, propelling the Rand down from above 19 to the Pound, to below 16 upon a few occasions in February.
However, the new leadership of the African National Congress scared the international market somewhat when it endorsed land expropriation without compensation. The reaction within the Rand looks to have been negative, dragging the Rand away from its lows in the 15s against the Pound and firmly into the mid-range of 16. Whilst the declaration has been met with little less than ridicule on the international stage, the salience of land and the underlying message might not be so bad for the domestic currency, perhaps explaining its moderated depreciation following the declaration:
The appreciation of the Rand following the departure of former President Zuma and accession of Cyril Ramaphosa was largely symbolic of the end of corruption and an introduction of the potential for reform. So long as the change of power had remained largely symbolic, the Rand would have gradually lost its footing against its international counterparts as markets repriced the political integrity of the (un)reformed South African regime.
However, declaring that land expropriation is on the cards and in the favour of the people does suggest that the newly inaugurated regime does have the commitment to change the deck. Therefore, there does, in my opinion, remain upside within the Rand in the medium run from political roots. With respect to economics, the reading of Consumer Price Inflation next week will be an event that creates significant risk for the Rand. The publication will largely frame the subsequent monetary policy decision that will be publicised within the week commencing 27th March 2018. As disinflationary pressures look to be disappearing more and more within the domestic economy, this event will be important to the consolidation of the Rand’s recent fortune.
Discussion and Analysis by Charles Porter