JOHANNESBURG, Aug. 25 (Xinhua) -- The South Africa rand and markets on Thursday plunged after it was revealed that the elite police unit, the Hawks had summoned Finance Minister Pravin Gordhan to make warning statements at its headquarters.
But Gordhan was adamant that there was no need for him to do so.
The SA rand fell 0.7 percent to R14.24 against the US dollar while the all share index dropped 0.15 percent at the close of trading.
The feud led investors to be nervous and led to a sell-off. The finance minister is accused of being involved in a "rogue unit" in the South African Revenue Service (SARS) during his tenure.
The Hawks wants Gordhan to be prosecuted for "espionage" in a case related to the activities of the SARS "rogue unit" established while he was the tax agency's commissioner between 1999 and 2009.
The unit has been accused of illegally gathering intelligence and spying on taxpayers, including VIPs.
Economists believe that the friction was likely to push inflation up, and was bad news for the already sluggish economy that was expecting a strong rand for a rebound.
Despite the Brexit which affected many emerging economies including SA, the local currency has been appreciating.
However, after the latest news surrounding the finance minister, the rand has weakened substantially.
"The country remains on a knife edge," said Warrick Butler, head of emerging-market at Standard Bank told Xinhua on Thursday. "As we all know too well these days, the country's leadership decisions can be unpredictable."
The bond market and the local currency had rallied earlier after President Jacob Zuma said he had full confidence in Gordhan, but the rand tumbled after he said will not intervene in the matter.
The presidency said on Thursday it wouldn't stop an investigation by a special police unit into allegations that Gordhan oversaw the establishment of an illicit investigative unit during his tenure as head of the national tax agency, even as Zuma expressed "full confidence" in the finance minister.
"President Jacob Zuma wishes to express his full support and confidence in the minister of finance and emphasises the fact that the minister has not been found guilty of any wrongdoing," the Presidency's spokesperson Bongani Ngqulunga said.
The rand remained exceptionally vulnerable, along with its emerging-market peers, as markets globally focus on news from Jackson Hole, from where investors are eagerly waiting for the US Fed to deliver what is expected to be a hawkish message in the speech by the Federal Reserve chair on Friday, Nedbank Corporate and Investment Banking analysts said.
That would support the dollar and put emerging-market currencies under pressure.
In October of 2015, when the then Finance Minister Nhlanhla Nene was unceremoniously fired, economists said the move cost the country billions of rands.
Speaking to the South African Broadcasting Corporation , an economist at Pan African Investment, Iraj Abidian, said issues involving public office bearers must be managed in a nuanced way so that it does not signal to the markets that there is plot within a plot.
"Normally, if a minister or a president has a case to answers there are ways of handling it within the ambit of the law without this brazen manner which the minister has been treated for the past few months."
