The South African rand saw a significant 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 news was well received by investors, with the rand trading at 18.01 against the dollar, 1% stronger than its previous close.
After weeks of intense deliberations, Ramaphosa named DA leader John Steenhuisen as agriculture minister in his 32-member cabinet, which includes ministers from seven different parties. Analysts and economists viewed the inclusion of the pro-business DA in key portfolios as a positive development for the country.
While the unity government formed by Ramaphosa aims to address South Africa’s economic issues, there is uncertainty about its effectiveness. However, the business-friendly outcome of the new cabinet is expected to strengthen the rand exchange rate in the immediate term. The African National Congress lost its majority for the first time in three decades in the recent election, leading to the formation of a unity government with former rivals.
The reappointment of Enoch Godongwana as finance minister has signaled continuity in the finance portfolio. The inclusion of a DA deputy as finance minister is expected to add checks and balances to the portfolio, allowing the DA to contribute meaningfully to policymaking.
On the domestic economic front, a purchasing managers’ index survey revealed that factory activity contracted again in June. Vehicle sales figures for June are set to be released later on Monday. Despite these challenges, the Johannesburg Stock Exchange saw positive gains, with the Top-40 index up 0.6% and the all-share index gaining 0.9%. The country’s benchmark 2030 government bond also strengthened, with the yield down 12 basis points at 9.865%.
President Cyril Ramaphosa’s announcement of a new coalition cabinet has had a positive impact on the South African rand and economic outlook. The inclusion of the Democratic Alliance and other coalition partners in key portfolios is seen as a step towards addressing the country’s economic challenges. However, the effectiveness of the unity government in tackling these issues remains uncertain, and the performance of the economy in the coming months will be closely watched.