Johannesburg - The rand hit an almost four-month high against the dollar yesterday as the country’s top court said President Jacob Zuma had failed to respect the constitution when he ignored the instructions of the public protector to repay some of the R246 million spent on his private home.
Analysts saw the rand’s move as the restoration of investor confidence in the rule of law in South Africa.
Read: SA's rand extends rally
The currency rose 1.53 percent against the dollar and was trading at R14.9491 at 6pm.
It was heading for its biggest monthly gain since 2009 as emerging markets closed out a March rally and investors looked beyond the political storm surrounding Zuma.
The rand has strengthened 5 percent against the dollar this week after Federal Reserve chairwoman Janet Yellen said the US central bank should “proceed cautiously” in raising rates, prompting a shift to riskier assets.
The stocks rose 5.6 percent – their best month since October.
The rand was the strongest after the rouble among the world’s major currencies against the dollar.
While the rand gained as Chief Justice Mogoeng Mogoeng read his judgment, investors betting on Zuma’s exit may be left disappointed because of the dominance of the ANC.
Isaac Matshego, an economist at Nedbank, said the unanimous landmark judgment by the Constitutional Court was positive for investor confidence in that it upheld the supremacy of the constitution.
Other than that, he said, he could not say whether the firming of the rand was in response to the judgment or a continuation of the momentum set by Yellen.
Colen Garrow, an economist at Lefika Securities, said the rand had rallied on news that the rule of law was upheld and that Zuma was not above the law.
He said the findings of the court were important in re-establishing whatever credibility markets felt South Africa might have lost over the Nkandla controversy, in particular the findings of the public protector on the matter. “The president will likely encounter pressure to step down. How successful such a move may be is still to be decided and is somewhat difficult ahead of local elections.”
Payment
Garrow said what might be learnt from yesterday’s experience was that markets would make decisions for policymakers, punish them where they got it wrong, but also reward them when they got it right, as was the case yesterday. The court ordered the Treasury to determine the reasonable portion the president should pay back for the non-security items in Nkandla and report back to the court within 60 days.
Zuma must make payment 45 days thereafter.
Peter Attard Montalto, an emerging markets analyst at Nomura International, said he thought the markets were and would continue to view this triumph of the Constitutional Court as positive for South African assets.
He said the markets viewed Zuma on the backfoot and so saw a higher chance of his exit or “Zumxit”.
Montalto said as a result, the rand and South African assets would likely remain on the frontfoot until the market realised the issue did not shift the needle decisively with the ANC’s national executive committee, beyond where it was already.
“The market also needs to recognise the deeper dismissive attitudes towards the constitution held by some parts of the ANC and that the impeachment process is unlikely to get anywhere as the ANC deals with issues internally and such a motion is highly unlikely to garner a two-thirds majority.”
* Additional reporting by Bloomberg
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