Rand to hold gains

The rand is seen holding on to more than half the gains it has made since Deputy President Cyril Ramaphosa became the ANC leader in December, provided he succeeds President Jacob Zuma in governing SA soon.

A Reuters poll of 40 currency strategists in the past three days suggested the rand will weaken nearly 6% against the US dollar this year to 12.70, having tightened up by 13% since the week before the December ANC conference.

News that President Jacob Zuma’s State of the Nation address had been postponed triggered bets that his resignation is imminent.

“The forecasts assume that Ramaphosa will succeed Zuma sooner rather than later. Should that not be the case, it will change otherwise,” said Rafiq Raji at Macroafricaintel.

The rand was trading at 11.98 against the dollar yesterday, close to what many strategists consider fair value, and a level deemed near-impossible to reach over the past three years, due to political risk.

Raji said “in light of recent developments, seeing as the rand has strengthened, it is an indication of what the likely trend will be over the course of the year if the expectations of the market pan out.”

“A lot depends on the political outlook for South Africa,” added Raji. “The market is hopeful Ramaphosa will succeed President Zuma very soon, and when that happens, most of these positive expectations will materialise.”

He added that the market hopes business confidence will improve and the country will probably be afforded more time by rating agencies to fix its public finances, thereby avoiding deeper credit downgrades.

Still, Ramaphosa’s incomplete victory in December could stymie his chances of implementing reforms to stimulate economic growth, which he placed at the centre of his campaign for the job.

A separate Reuters poll last month showed growth in SA is expected at 1.3% this year and 1.6% next. It also showed interest rates are expected to remain steady at 6.75%. – Reuters