Rand tanks as DA threatens to walk away from Ramaphosa’s Government of National Unity

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South Africa’s currency fell the most in emerging markets Thursday (27 June), leading a selloff in the nation’s assets, amid growing anxiety over delays to the formation of President Cyril Ramaphosa’s Cabinet.

The rand fell almost 1% to R18.35 per US dollar by midday.

That put it on course for the lowest close since June 14 and the worst performance among developing-nation peers this week.

South Africa’s benchmark sovereign-bond yield jumped 12 basis points, the most in three weeks, and stocks dropped for a third day.

It’s been eight days since Ramaphosa was sworn in, and he still doesn’t have a functioning Cabinet as talks drag between the African National Congress and Democratic Alliance over its composition.

In 2019, when Ramaphosa had enjoyed a parliamentary majority, it took only five days.

Traders worry the delay this time might lead to a less desirable outcome from the markets’ perspective, even though the ANC said Wednesday an announcement would be made within 48 hours.

“There are two things in rand investors’ minds,” said Sebastien Barbe, the head of EM research at Credit Agricole CIB. “The composition of the government is the foremost. Even if this ANC-DA alliance has been already priced in, DA having significant economic ministries could see some upside for the rand.”

Over the long term, South Africa’s Reserve Bank, hinting at possibly lowering the inflation target, suggested “possibly rates higher for longer – potentially rand supportive as well when it happens,” said Barbe.

News24 reported on Thursday that the main sticking point between the ANC and DA was Ramaphosa walking back on on offer the latter agreed to on Wednesday, looking to make last-minute changes.

As part of the GNU, the DA was reportedly offered six cabinet positions and seven deputy positions, with one of the main portfolios being the Department of Trade and Industry and Competition.

However, Ramaphosa allegedly wanted to switch that portfolio to Tourism, while also dropping one of the deputy positions. The DA told News24 that it would walk away from the GNU if the original, agreed-to offer wasn’t reinstated.

While it remains the biggest political party in the country, the ANC is no longer a majority government and has to negotiate its structure of government. Ramaphosa was elected with the backing of the DA last week.