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Abu Dhabi, UAEFriday 14 December 2018

South African rand rallies ahead of Ramaphosa address

Cyril Ramaphosa was sworn in as president on Thursday, replacing Jacob Zuma

Cyril Ramaphosa, right, has been sworn in as South Africa's new president after Jacob Zuma, left, resigned. Kim Ludbrook / EPA
Cyril Ramaphosa, right, has been sworn in as South Africa's new president after Jacob Zuma, left, resigned. Kim Ludbrook / EPA

The South African rand continued to strengthen against the US dollar ahead of new president Cyril Ramaphosa’s maiden speech to the nation on Friday.

Mr Ramaphosa was sworn in as South African president on Thursday after Jacob Zuma resigned amid in-fighting and pressure from the ruling African National Congress.

The presidential reshuffle has proved positive for the rand, which traded at 11.66 against the greenback at 12.23 UTC time, having been at 11.57 in earlier trading on Friday.

The rand rallied on Monday by almost 1 per cent to 11.88 against the dollar following speculation that Mr Zuma would step down.

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Read more:

South Africa wakes up to the end of Zuma

Zuma’s reluctant exit ushers in new South African president

Amid the turmoil South Africa's rand powers up

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By Tuesday morning, the currency was trading 0.08 per cent firmer at 11.93 and it has continued to strengthen since Mr Zuma’s resignation.

Ratings agency Standard & Poor’s issued a statement on Thursday saying that the new leadership could help speed up implementation of key reforms in South Africa, and instil greater confidence in businesses and the public. But it warned that public finances were unlikely to stabilise in the short term.

“Mr Ramaphosa and his administration will require time to design and implement measures to improve economic growth and stabilise public finances, given the structural and institutional challenges that South Africa faces,” the statement said.

“Economic growth remains low, impeding the path to fiscal consolidation. We think the government will attempt to introduce offsetting measures in an effort to improve budgetary outcomes, but these may not be sufficient to stabilise public finances in the near term.”

The South African rand reached a 10-year low in January 2016, hitting 16.8 to the dollar, in contrast to the 10-year high of 6.6 to the dollar in May 2011.

S&P Global Ratings downgraded the country's local currency debt to “junk” status in November 2017 after Zuma fired the respected Pravin Gordhan as his finance minister that March, causing the rand to weaken 2 per cent against the greenback.

However, Moody’s decided only to place South Africa on “review” for a downgrade, which helped to prevent a larger sell-off in the currency at the time.

Local currency borrowing makes up about 90 per cent of the South Africa’s total 2.2 trillion rand ($159 billion) of debt, according to S&P.