We were recovering until Minister Pravin Gordhan's NPA saga
Johannesburg — Until news of renewed Cabinet tussle between Finance Minister Pravin Gordhan and the National Prosecuting Authority (NPA), the South African economy has steadily been recovering.
The rand was the second highest emerging market currency after the Mexican peso yesterday due to a return in risk appetite.
But today's report that Minister Gordhan had been summoned to appear in court by the NPA, shocked the country's economic stabiity.
The rand was substantially weaker against major global currencies after the news broke. The local currency slipped more than 3% through R14 to the dollar, after National Director of Public Prosecutions Shaun Abrahams made the announcement on Tuesday morning.
Abrahams said Gordhan, in his previous role as head of the South African Revenue Service (SARS), would be charged with approving early-retirement for former tax agency deputy commissioner Ivan Pillay and then re-appointing him as a consultant.
This cost the tax agency around R1.1 million ($79,000), in violation of public finance laws, Abrahams said.
Many suspect that the arrest is politically motivated following his disagreements with President Jacob Zuma. Gordhan's management is thought to be soothing SA's volatile economy, and he is committed to cutting the country's budget deficit.
But, in light of Gordhan's recent troubles, a Reuters poll conducted just days after news of his summoning indicated that South Africa's credit rating is likely to be cut to "junk" status this year.
TreasuryOne currency dealer Andre Botha said the rand lost 35c to the dollar within 10 minutes of the news breaking.
He said it seemed nothing was standing in the way of further weakness in the currency.
Botha said that a weaker rand meant inflation would increase and the South African Reserve Bank would have to reconsider its latest view on interest rates.
At the last monetary policy committee meeting, Bank governor Lesetja Kganyago said the current rate-hiking cycle might be coming to an end.
At 1.05pm the rand was at R14.2498 to the dollar from Monday’s R13.8116.
It was at R15.7933 to the euro from R15.3829 and R17.4728 to the pound from R17.0718.
The euro was at $1.1084 from $1.1139 previously.