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Price of the rand moves to its worst levels ever after SARB warning and Putin immunity grant

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The SARB warns of secondary sanctions following news that Putin to be granted diplomatic immunity for BRICS summit.

original-size.webpSource: Bloomberg

 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Wednesday 31 May 2023 

What has happened?

International Relations and Cooperation Minister Naledi Pandor has issued notice for the Diplomatic Immunity and Privileges Act to be granted to all international officials at BRICS-related events in South Africa.

This notice has now been gazetted as of Monday the 29th of May and grants diplomatic immunity to Russian President Vladimir Putin to attend the upcoming BRICS (Brazil, Russia, India and South Africa) summit.

The immunities provide immunity for all delegates (not just Putin) from personal arrest or detention.

A warrant for Putin’s arrest

In March this year, the International Criminal Court (ICC) issued a warrant for Putin’s arrest after investigations of war crimes in Ukraine. South Africa is currently a member of the ICC. The diplomatic immunity being gazetted could be in contravention with these international rules of law. Whether the immunity is or is not in contravention, or subject to a loophole thereto, the news certainly bodes poorly for sentiment regarding South Africa’s stance of ‘neutrality’ towards the ongoing Russian / Ukrainian war. This in turn could have a negative knock-on effect for foreign direct investment into the country which is reflecting in the rand which is trading at record highs against its major currency peers.

A warning from the South African Reserve Bank (SARB)

The SARB on Tuesday the 30th of May issued its Financial Stability Report (FSR). Within the report the central bank specifically made mention to the importance of South Africa maintaining its ‘neutrality’ stance.

The position of ‘Neutrality’ was questioned recently after comments from a US ambassador to South Africa accused South Africa of supplying weapons and ammunition to Russia. While this matter is still under investigation, if true, would suggest a violation of US imposed sanctions on Russia by South Africa.

US Treasury Secretary Janet Yellen, in her recent trip to South Africa gave strong mention that, ‘Violation of those sanctions by local businesses or by governments – we would respond to quickly and harshly and we certainly urge that there be compliance with those sanctions’

In the FSR report, the SARB flagged the following: ‘The events reported in the media and recent remarks by the US Ambassador to South Africa could change perceptions about South Africa’s neutrality, which could build up to a point where it triggers secondary sanctions being imposed on South Africa. Considered along with the recent Financial Action Task Force greylisting, the potential implications for the South African economy are severe, and the considerations from a financial stability perspective pertinent. Even in the absence of formal secondary sanctions, counterparts to South African financial institutions could put institutions under intensified scrutiny and decide to reduce their exposure to South Africa as part of their own risk management processes.’

When we contextualize the SARB commentary with the granting of diplomatic immunity to the Russian president, it certainly appears to grant little in the way of confidence for foreign investment.

The rand

The rand is currently dealing with a plethora of challenges domestically, ranging from the recent greylisting, the enormous burden of State-Owned Entities (SOEs) on the country’s fiscus, increased vulnerability in diplomatic ties, fragile economic growth and an escalating power crisis. This unfortunately has seen the local currency now depreciating to its worst ever levels in history against major peers such as the US, Euro and British Pound.

USD/ZAR – technical view


053123_USDZAR.pngSource: IG Charts

The USD/ZAR remains in a long-term uptrend (dollar strength / rand weakness) as the price trades within the upward channel and firmly above the 200-day simple moving average (200MA) (blue line).

In the near term, the price breakout above the 19.50 suggests the short-term continuation of the longer-term uptrend. Channel resistance at 20.20 provides a possible upside resistance target as the price moves deeper into new high territory.

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