South African rand plunges after finance minister sacked in reshuffle

South Africa’s rand plunged five percent Friday after President Jacob Zuma sacked his finance minister and made ten new cabinet appointments in a dramatic reshuffle that has fuelled fears of a split in the ruling African National Congress.

The decision to fire Pravin Gordhan rocked investors, who had come to view him as a trusted operator and safe pair of hands who had stressed his intention to intention to rein in spending, tackle graft and reduce the budget deficit.

Now there is a fear his removal could persuade investors and voters that once-booming South Africa is heading toward fiscal and political instability.

The rand dived to 13.4618 against the dollar in Asia on Friday, from 12.7933 before the news was confirmed, before recovering marginally.

The currency has been teetering since Monday, when Zuma ordered Gordhan back from a business trip to Britain, sparking speculation about his position after months of friction between the two.

Investors are now worried that Zuma, who has been tainted by corruption scandals, had secured a free hand over government finances.

Zuma has vowed to enact “radical economic transformation” to tackle racial inequality and poverty, while Gordhan has fought to control spending and root out corruption.

The president’s cabinet overhaul — including the removal of several top members — has raised the prospect of a split in the ANC, which led the fight against apartheid and came to power under Nelson Mandela in 1994.

Gordhan was replaced by home affairs minister Malusi Gigaba.

“Market reaction to the cabinet reshuffle and what looks to have been a clean sweep of the treasury top team is going to be a significant negative,” Razia Khan, chief Africa economist at Standard Chartered Plc, told Bloomberg News.

“Given past volatility in the rand when a cabinet reshuffle was even suggested, the expectation is that the impact may be more pronounced now.”

The rand is on track for its biggest weekly drop since the days after Zuma abruptly dismissed Nhlanhla Nene as finance minister in December 2015, according to Bloomberg News.

In other forex trading, the dollar held its ground after the US Commerce Department announced an upward revision of US economic growth by 0.2 points for the last three months of 2016, boosted by stronger personal spending.

The greenback was at 112.04 yen in Tokyo, from 111.86 yen in New York Thursday afternoon.

The euro bought $1.0680 against $1.0679.