South Africa’s Rand Rallies as Ramaphosa Set to Give More Support to Eskom

JOHANNESBURG – South Africa‘s rand rallied in late trade on Tuesday after the government signalled it will give additional support to power firm Eskom, and as emerging currencies were lifted by expectations the Federal Reserve could signal U.S. rate cuts.

Illustration photo shows a two-rand coin above a South Africa flag April 12, 2017. REUTERS/Thomas White/Illustration/File Photo

At 1400 GMT the rand was 1.76% percent firmer at 14.5475 per dollar, after early in the day trading at around the 14.80 mark.

One reason was attributed to a statement by the Presidency today that President Cyril Ramaphosa will announce more measures to support cash-strapped power utility Eskom.

“It is expected that the President will announce further measures to support Eskom’s efforts at recovery and financial and operational sustainability,” the presidency said, following a meeting between Ramaphosa and Eskom’s board.

The presidency did not say when the measures would be announced, but Ramaphosa is scheduled to make his State of the Nation address on Thursday.

The Rand also jumped as demand for emerging market assets was buoyed by the potential for policy easing by the U.S. and European Union central banks.

The U.S. Federal Reserve concludes a two-day meeting on Wednesday and is expected to lay the groundwork for a rate cut later this year.

The rand tumbled to 15.1750 on June 7, its worst level in 2019, following a 3.2% contraction to economic growth in the first quarter and a row between ruling African National Congress and government officials over the Reserve Bank’s mandate.

“Although investments in South Africa continue to carry substantial idiosyncratic risk, for now the climate looks to be much more favourable as the woes of Eskom and divisions in the ANC party become more muted,” Harvey added.

Traders said Ramaphosa’s comments had certainly made a difference.

“The comments from Ramaphosa about additional support for Eskom have certainly boosted the rand. You saw stops triggered at 14.60 and a move lower in illiquid conditions against a weakening dollar,” said Oliver Alwar, a senior dealer at Standard Bank.

In February the South African government pledged a 23 billion rand ($1.58 billion) a year bailout for Eskom over the next three years, but the firm has said it needs more cash to keep the lights on after nationwide power cuts earlier in the year.

Bonds also jumped, with the yield on the benchmark 10-year government bond falling 11 basis point to 8.27%, their lowest level since April 2018.

On the stock market, the Johannesburg Stock Exchange’s benchmark Top-40 Index advanced 1% to 52,692 points while the All-Share Index rose 0.9% to 58,723 points, as retailers and banks were boosted by the firmer currency.

Shoprite, Nedbank and Discovery led the blue-chip pack, all gaining more than 3% on the day, while the losers were led by commodity traders with Gold Fields plunging more than 6% and AngloGold Ashanti sliding 4%.

(Reporting by Mfuneko Toyana; Editing by Susan Fenton)