South Africa’s central bank said yesterday it expected the country’s financial system to remain resilient despite risks from worldwide elections, persistent geopolitical tensions and weak domestic market conditions.
With more than 70 countries going to the polls this year – among them South Africa last month – the South African Reserve Bank (SARB) said the possible changes in policy that might result had heightened market volatility.
The governing ANC lost its majority for the first time in three decades in national and provincial elections on May 29.
The ANC said yesterday that it was leaning towards a government of national unity with several parties, which last happened at the fall of apartheid in 1994.
The rand has traded erratically since last week as news of the election outcomes filtered through to investors.
Early yesterday afternoon the rand traded at R18.89 against the dollar, around 0.9% weaker than its previous close after a press conference by the ANC where the party discussed its future path.
The party has held discussions with the DA and EFF, among others.
The SARB said in the first edition of its Financial Stability Review, the biannual health check of the financial system, that high exposure to government debt and the weak fiscal position overall, undermined market resilience.
Steady progress had been made to strengthen the domestic financial safety net through the introduction of deposit insurance and a broader financial sector stress-test which included banks and insurance companies, the central bank said.
Globally, geopolitical tensions and stickier inflation meant some economies were experiencing divergent recoveries, increasing market volatility.
Despite these risks, the central bank said it expected the financial system to remain resilient over the forecast period to May 2025.
Emerging market stocks rebounded yesterday, aided by stabilising Indian equity markets and softer-than-expected US economic data that lifted expectations of an interest rate cut from the Federal Reserve.
The MSCI’s EM equities index gained 1.04%, with India’s main stock indexes rising more than 3% after having logged declines of nearly 6% on Tuesday.
Local markets were knocked lower by concerns about policy continuity after Indian Prime Minister Narendra Modi’s alliance looked headed for a narrow majority in the country’s 543-member parliament.
Overall, EM currencies were mixed and stocks rose after data on Tuesday showed that US job openings fell more than expected in April, raising bets that the US central bank will begin cutting rates.
The Mexican peso rebounded 1.2% to 17.64 per dollar after hitting a more than seven-month low of 18.19 on Tuesday after a strong election victory for Mexico’s ruling party over the weekend sparked concerns about disputed constitutional reforms.
The Turkish lira steadied after touching near seven-week lows on Tuesday when Türkiye’s central bank head said it could consider decreasing the ratio of foreign exchange revenues that exporters are required to sell to the bank.
Türkiye was also looking to impose a transaction tax on purchasing and selling stocks and crypto assets.
The South African rand edged lower for a second day as focus remained on which coalition partner the ANC would choose after last week’s election saw it lose its majority.
REUTERS