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Rand nears five-week high after Gordhan charges dropped

South Africa‘s rand extended earlier gains against the dollar on Monday, reaching its strongest in nearly five weeks after the state prosecutor dropped fraud charges against Finance Minister Pravin Gordhan.

The rand extended its gains to more than 2% to reach a high of 13.5200 per dollar at 1209 GMT, its strongest since September 28 according to Thomson Reuters data, largely driven by the charges against Gordhan being dropped.

Government bonds followed suit, with the yield for the ten-year benchmark instrument sliding 17.5 basis points to 8.7%, its lowest since Oct. 10.

Bank shares on the Johannesburg Securities Exchange gained, with the banking index up 4.35% on the day.

The minister was due to face charges in court on Wednesday that he fraudulently approved early retirement for a deputy tax commissioner and re-hired him as a consultant, costing the revenue service R1.1-million ($80 000).

Investors have been worried that the case against Gordhan could lead to his removal as finance minister, respected within financial markets for his efforts to rein in South Africa‘s budget deficit even in the face of weak economic growth.

“The rand rallied … in relief that the finance minister currently remains able to continue the fiscal consolidation he outlined in the February Budget, and October mini-Budget,” Investec analyst Annabel Bishop said.

The rand’s gains increased further after the country recorded a surprise trade surplus of R6.7-billion ($495-million) in September, from a revised R8.9-billion shortfall in August, data from the revenue agency showed.

Analysts however cautioned that local assets remained vulnerable to a possible downgrade to South Africa‘s investment-grade credit rating by year in the face of anaemic economic growth, seen by the Treasury at 0.5% in 2016.

 

Source: Engineering News