South Africa

Rand rallies as GNU cabinet takes shape

South Africa is close to concluding discussions on forming a government of national unity, the African National Congress said. The rand jumped.

“Almost done with GNU discussions, in the best interest of all South Africans,” ANC Secretary-General Fikile Mbalula said in a post on X. “It will be done as promised.”

Mbalula’s statement coincided with Bank of America strategists saying they’ve closed their bearish trade recommendation for the currency as they anticipate a coalition government will be formed by the ANC and the centrist Democratic Alliance.

The rand strengthened as much as 1.7% and traded 1.5% stronger at 18.20 per dollar by 13:45 p.m. in Johannesburg. A close at that level would mark the currency’s biggest gain this month, according to data compiled by Bloomberg.

The ANC and the DA emerged as the two largest parties in last month’s elections and have been in discussions for the past week on forming a new cabinet.

The talks stalled on Thursday over differences on which posts would be allocated by President Cyril Ramaphosa to the DA.

Should the two parties come to an agreement, investors anticipate an acceleration of economic reforms needed to address South Africa’s energy crisis, fix its collapsing ports and railways, and reduce crime and corruption.

“This past day or two of tension looks like the DA threatening to walk away from a street market haggle, but a deal is wanted by both sides,” said Charlie Robertson, head of macro strategy at emerging-market investment firm FIM Partners.

DA spokesman Richard Newton said his party’s negotiating team is meeting Ramaphosa today and that it remains intent on reaching a deal, with talks expected to conclude soon.

“The discussions are ongoing,” he said by phone. “We want this to work for the sake of the country as well as the sake of the party.”

Bank of America strategists including Mikhail Liluashvili said the market is still pricing in about 3% of “positivity premium” into the dollar/rand exchange rate.

“We think it is justified by electricity improvements in the country,” he said, referring to power utility Eskom Holdings SOC Ltd.’s efforts to stabilize supply after record outages.

South Africa’s benchmark equity index rose 1%, with the gains led by banking stocks. South African equities are on track for their strongest quarter since 2022. Yields on the benchmark 10-year government bond dropped by 22 basis points.

“While the rand and local bonds have rallied significantly, a government of national unity including the DA would likely help to anchor South Africa’s traded assets,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank.

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