South Africa’s new president reappointed Trevor Manuel as Finance Minister on Thursday, reassuring investors worried about major policy change in Africa’s biggest economy.
Factory gate inflation edged higher, but its acceleration slowed, raising hopes prices may be at a peak and boosting government bonds.
Newly elected President Kgalema Motlanthe confirmed Manuel in his post after news of his resignation sent shockwaves through markets on Tuesday.
The widely-respected finance minister — who has presided over the country’s longest period of growth — stepped down after ANC president Thabo Mbeki was forced to resign as president. He later pledged his services to Motlanthe, helping the rand pare losses.
Motlanthe did not name a new deputy finance minister, however, to replace Jabu Moleketi.
The rand was trading about 0,4% stronger against the dollar at 16.30pm GMT, erasing some of the losses suffered on Tuesday.
Manuel’s position in the Cabinet was seen as crucial for foreign investors hoping for a stable transition amid South Africa’s worst political crisis since the end of apartheid in 1994.
Analysts said the move was positive but investors may still be concerned about the direction of policy under a more left-leaning president.
”I think it’s a welcome step because obviously the market wanted to see Manuel in charge and policy continuity,” Lucy Bethell, currency strategist at the Royal Bank of Scotland said.
”[But] the fact that Mbeki was ousted may show that the left wing is growing in influence … and that may weigh on sentiment.”
Motlanthe said in his first speech as president that the economic policies that had helped ensure sustained growth would not change, although he stressed more effort would go into creating jobs.
”Mine is not the desire to deviate from what is working. It is not for me to reinvent policy,” he told Parliament.
Prices peaking
Motlanthe, the deputy president of the ANC, is expected to remain state president until elections in 2009, when party leader Jacob Zuma is almost certain to take over.
The two are seen as more left wing than Mbeki, particularly due to the staunch backing from trade unions and the South African Communist Party that saw Zuma defeat Mbeki for the ANC presidency.
The political change comes at a difficult period for the South African economy, with inflation at record levels and global volatility helping to slow economic growth.
Statistics South Africa said producer inflation quickened to 19,1% year-on-year in August — its highest level since 1986, although the basket was changed in January — from 18,9% the previous month.
The increase added to the record high 13,6% for targeted CPIX announced on Tuesday.
But analysts said the slower acceleration — the market had expected a 19,2% rise — may point to inflation peaking.
Government bonds firmed after the data was released and the benchmark 2015 bond yield was last 12 basis points lower at 8,82%.
The high consumer and producer numbers will likely continue to worry the central bank, resulting in it possibly holding off on an expected interest rate cut in 2009, while another hike next month is still not completely off the table.
The central bank lifted its repo rate five percentage points between June 2006 and June 2008, before leaving it steady at 12% in August on a better inflation outlook and worries about cooling spending.
”It still shows inflation is robust, but we feel that this is pretty much the peak in PPI numbers,” George Glynos, managing director at market analysts ETM, said.
”It does suggest that looking for a February rate cut would be too soon, I think in this scenario a rate cut in June would be more appropriate,” he added.
The central bank’s monetary policy committee will announce the next rates decision on October 9. – Thomson Reuters