If economic instability arises in the wake of the political transition and the rand weakens badly, the risk of another rate hike becomes stronger, says chief economist from Investment Solutions, Chris Hart.

He highlights that this scenario would not be the ideal one for a “populist ANC”.

“When you get a downturn and an election, you get desperate politicians,” he says.

Genuine risk

He said the weekend's events did create short-term financial stability risk via potential “genuine” risk aversion trades and the rand could thus weaken, possibly to 8.50 to the dollar, or even nine.

“But let's hope it is not closer to nine,” said Hart.

Hart says longer-term risks arise if the economy shifts to a “new, populist stance”.

“Remember, the ANC alliance partners [SACP/Cosatu] are against a budget surplus and inflation targeting,” he said.

Hart says this does not mean to say the country has to have a budget surplus, but it is more a case of whether the surplus will be “wiped out” on inefficient spending.

“Then we go down the path of unsustainability, with much higher funding costs,” he said.

Manuel approach

Hart is also interested to see how Finance Minister Trevor Manuel approaches potential economic changes.

“Is Manuel going to be the champion of economic policy or fight a rearguard action to preserve the successes we did have?” he asks.

He also wonders if Mboweni could be replaced if he hiked rates.

ANC secretary-general, Gwede Mantashe, confirmed on Sunday that Manuel, nor any of the other cabinet ministers, had resigned in the wake of Mbeki stepping down.

He noted that he did understand financial markets were concerned about the position of Manuel.

Meanwhile, the Helen Suzman foundation has cautioned against market uncertainty in turbulent times.

South Africa, as a key emerging market, could hardly afford "self-inflicted uncertainties" about economic policy or who would be responsible for developing it.

A clear effort must be made to rebuild and not simply replace one office incumbent with another for political expediency, it continued.

"Whilst it is the ruling party's prerogative to alter its leadership, it must not do so with scant regard for the impact of its actions on increasing the uncertainty profile of the country for investors, both domestic and foreign and existing and prospective alike."

I-Net Bridge