South Africa’s rand faces a fresh challenge amid uncertainty about the fate of Finance Minister Enoch Godongwana, who’s battling allegations of sexual assault and may be forced to step down.
Should Godongwana be sidelined just two months ahead of a budget update, the rand would likely extend a decline sparked by concerns about Federal Reserve tightening that have boosted the dollar, said George Glynos, the managing director and chief economist at ETM Analytics.
While Godongwana has denied the allegations, he has said he’s prepared to step down if charges are brought against him. The South African police sent a docket on its investigation into the allegations to the National Prosecuting Authority, which will decide whether the minister should be prosecuted.Still, traders may be underpricing the risk, if volatility measures are anything to go by.
South Africa’s political risk score as measured by GeoQuant indexes is rising amid the saga. President Cyril Ramaphosa is also embroiled in a scandal that has weakened him politically, following allegations he concealed the theft of foreign currency from his private game farm. Ramaphosa has denied any wrongdoing.
“This is all just an extra reason not to get too bullish the ZAR,” said Christopher Shiells, a managing analyst at Informa Global Markets. “I think if any of these political risks actually develop then they will cause some further rand losses.”
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