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Wednesday, 19 June 2024 10:23

Rand breaks below R18/$ barrier on Ramaphosa's inauguration day.

By Ahmed Areff.

The rand strengthened to below R18 to the dollar on Wednesday, breaking below the psychologically important level for the first time in 11 months. 

The rand traded at R17.95 to the dollar after 09:00. This is in the midst of a wave of optimism that the newly formed government of national unity (GNU) will provide stability and provide a framework for much-needed economic reforms in SA.

It also comes as Cyril Ramaphosa is sworn in for a second term as president at the Union Building later on Wednesday morning, and a major rally that saw the rand strengthen significantly from R18.29 on Tuesday morning.  

The JSE All-Share Index also closed 3.5% higher on Tuesday, led by a surge in insurance, banking and retail stocks.

Investor demand at South Africa’s weekly government bond sale rose, as primary dealers placed orders for R19.16 billion of debt, more than five times the R3.75 billion of securities on sale on Tuesday. This compares with a ratio of 3.9 at the previous auction, according to central bank data compiled by Bloomberg.

On Tuesday, JPMorgan, the world's largest bank by market value, double upgraded SA assets on optimism that the new government of national unity (GNU) was likely the best post-election outcome for the country's economy. It, however, cautioned that risks to its assessment were that no Cabinet was in place yet and the GNU structure had not been tried in almost 30 years.

S&P Global Ratings also said on Tuesday that the GNU's nine-point agenda aims to prioritise structural reforms to address basic infrastructure and service delivery shortfalls and weak investments, while gradually narrowing fiscal deficits.

It said this would likely not cause any significant policy shift in SA and was "broadly favourable" for SA's economic and fiscal outlook, though it cautioned the GNU may struggle to achieve both economic growth while maintaining fiscal discipline given the risks of navigating coalition politics.