The South African rand experienced a rally on Monday following President Cyril Ramaphosa’s announcement of a new coalition cabinet that includes the leader of the former opposition Democratic Alliance (DA). This decision was met with positive reception from investors, leading to the rand trading at 18.01 against the dollar, 1% stronger than its previous close.
Analysts and economists viewed the inclusion of the pro-business DA in key portfolios as a positive development. The 32-member cabinet, which includes ministers from seven different parties, signals a sense of relief among stakeholders. Jee-A van der Linde, senior economist at Oxford Economics, noted that while it remains to be seen whether the unity government formed by Ramaphosa can address South Africa’s economic issues, the new cabinet is deemed as a business-friendly outcome. This sentiment is expected to further strengthen the rand exchange rate in the immediate term.
Momentum Investments economist Sanisha Packirisamy highlighted the reappointment of Enoch Godongwana as finance minister as a signal of continuity. The appointment of a DA deputy minister of finance also adds to the checks and balances within the portfolio, allowing for a more meaningful contribution to policymaking from the DA.
On the domestic economic front, a purchasing managers’ index survey revealed a contraction in factory activity in June. Furthermore, vehicle sales figures for June are expected to be released later on Monday. Despite these economic indicators, the Johannesburg Stock Exchange saw positive movements with the Top-40 index up 0.6% and the all-share index gaining 0.9%. Additionally, the country’s benchmark 2030 government bond strengthened, with the yield down by 12 basis points at 9.865%.
Overall, the formation of South Africa’s new coalition cabinet under President Ramaphosa has had a positive impact on the rand and economic sentiment. The inclusion of a diverse range of ministers from different parties, including the DA, is seen as a step towards addressing the country’s economic challenges in a collaborative and business-friendly manner. However, the success of the unity government in addressing South Africa’s economic issues remains to be seen in the coming months.