South Africa's rand is seen holding on to more than half the gains it has made since Deputy President Cyril Ramaphosa became the ruling African National Congress leader in December, provided he succeeds President Jacob Zuma in governing the country soon. A Reuters poll of 40 currency strategists in the past three days suggested the rand will weaken nearly 6 percent against the greenback this year to 12.70 per dollar, having tightened up by 13 percent since the week before the December ANC leadership conference.
News on Tuesday that the ANC had postponed President Jacob Zuma's state of the nation address scheduled for Thursday triggered bets that his resignation is imminent. "The forecasts assume that Ramaphosa will succeed Zuma sooner rather than later. Should that not be the case, it will change otherwise," said Rafiq Raji, chief economist at Macroafricaintel in Lagos.
The rand is currently trading at 11.98 against the dollar, close to what many strategists consider fair value, and a level which was deemed near-impossible to reach over the past three years due to political risk associated with the country. But Raji said "in light of recent developments, seeing as the rand has strengthened, it is an indication of what the likely trend will be over the course of the year if the expectations of the market pan out."
Just last month, the currency was forecast to finish the year at 13.85 per dollar as strategists had doubts about how much Ramaphosa, a promised reformer, can actually accomplish for South Africa's ailing economy. "A lot depends on the political outlook for South Africa," added Raji. "The market is hopeful Ramaphosa will succeed President Zuma very soon, and when that happens, most of these positive expectations will materialise."
He added that the market hopes business confidence will improve and the country will probably be afforded more time by rating agencies to fix its public finances, thereby avoiding deeper credit downgrades. S&P Global Ratings downgraded South Africa's local currency debt to sub-investment grade in November and pushed its foreign currency debt deeper into "junk" territory. Moody's put the country on review for a downgrade.
Still, Ramaphosa's incomplete victory in December could stymie his chances of implementing reforms to stimulate economic growth, which he placed at the centre of his campaign for the ANC's top job. A separate Reuters poll last month showed growth in Africa's most industrialised nation is expected at 1.3 percent this year and 1.6 percent next.
That same poll suggested interest rates in South Africa are expected to remain steady at 6.75 percent, at least until the end of the of the forecast horizon in 2020. The rand is expected to find further support from a modest pace of hikes in US interest rates.
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