Market, currency plunge following cabinet exodus

“Following the news, the markets reacted almost immediately with the All Share dropping 4% [although it has rebounded to about 3%] and the rand has lost 25 cents and sitting at about R8.20 to the dollar.

“Bonds are selling off and equities, although it started yesterday, are also selling off,” Econometrix economist Russell Lamberti told BuaNews, Tuesday, in the wake of the mass resignations.

The All Share is hovering around the 25100 level, while gold and platinum are both down 0.68% and 2.4% respectively.

“To put it into perspective, it's not a doomsday scenario ... but the markets have reacted strongly and investors are likely to watch the situation carefully,” highlighted Lamberti.

Cabinet resignations

Tendered resignations on Tuesday include that of the deputy president and minister in the presidency as well as the ministers of Defence, Finance, Intelligence, Correctional Services, Public Enterprises, Science and Technology, Public Works, Provincial and Local Government, and Public Service and Administration.

The deputy ministers of Finance, Foreign Affairs and Correctional Services have also announced their resignations, the Presidency confirmed.

Finance Ministry spokesperson Thoraya Pandy, however, has confirmed that while both minister and deputy have resigned, that they will avail themselves to the new administration.

“They are both appointed by the President of the Republic to serve the country and are duty-bound to resign given the resignation of Thabo Mbeki.

“They both, however, want to make it clear that they are ready to serve the new administration in any capacity that the incoming President deems fit,” said Pandy.

The announcement of the exodus of cabinet ministers, effective from 25 September 2008, came in the wake of higher than expected inflation figures.

CPIX rising

Statistics South Africa (Stats SA) on Tuesday reported that the Consumer Price Index excluding interest on mortgage bonds (CPIX) rose to 13.6% year-on-year (y/y) in August 2008, up 0.6% of a percentage point on the July rate of 13%.

“The likelihood of interest rate hikes is not out of the realms of possibility at the moment, as the South African Reserve Bank could introduce strong interest rate hikes to boost the rand.

“A number of interest rate hikes could be used to strengthen the currency [should it drop significantly], as high interest rates attract foreign investors who take a currency at a particular interest rate and then invest in South Africa where the returns on the their investment will be high,” Lamberti told BuaNews.

He does not foresee any interest rate cuts in the near future, adding the latest retail figures show South Africa's retail industry has also slowed significantly.

“We're in what you might call a strong retail recession which is not conducive to interest rate hikes [and is further evidence that South African consumers are spending less],” Lamberti said.

Article published courtesy of BuaNews