South Africa’s rand grew stronger last week following the release of inflation data and the inauguration of President Cyril Ramaphosa for his second term.
With investors focusing on the unity government announcement, the rand traded below R18 to the dollar by the end of last week, breaking through expected resistance levels. Nine political parties have joined the ANC as a government of national unity (GNU) including the pro-business Democratic Alliance, which is favoured by markets. Market optimism is high, as many believe this new coalition will lead to much-needed fiscal reforms and economic growth, with the ANC sharing power for the first time.
The rand reached a one-week low of R18.23 per USD on Monday, before recovering to around R18.10. This shift was due to technical correction and investor anticipation of President Cyril Ramaphosa’s cabinet appointments. Despite 10 political parties having signed on to form a GNU, there are still ongoing negotiations between the ANC and the DA over cabinet positions.
Investors want both parties to play a leading role, balancing social and economic responsibilities. Reports indicated some friction between the ANC and DA over cabinet allocations, which contributed to the rand’s decline. The upcoming cabinet allocation, particularly the DA’s role, is a crucial event for South African markets.
Analysts predict that South Africa’s interest rate cuts will be delayed from September to November due to persistent inflation. In May 2024, inflation was at a four-month low of 5.2%, still above the South African Reserve Bank’s target of 4.5%. Data released on Wednesday confirmed stable year-on-year inflation at 5.2%, leading analysts to expect no immediate interest rate cuts as inflation remains above the central bank’s desired level.
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Thursday, 27 June
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