Rand set to re­main volatile due to SA’s po­lit­i­cal dys­func­tion

The Star Early Edition - - COMPANIES & NEWS - Ka­belo Khu­malo

THE RAND will con­tinue to ex­hibit vo­latil­ity this week as emerg­ing mar­kets cur­ren­cies come un­der pres­sure amid sig­nals from de­vel­oped mar­kets’ cen­tral banks that an era of easy mon­e­tary pol­icy and low in­ter­est was reach­ing its con­clu­sion.

The rand last week slumped to a seven-month low as the gov­ern­ing ANC said it was con­sid­er­ing na­tion­al­is­ing the Re­serve Bank, but af­firmed the bank’s in­de­pen­dence.

On Fri­day at 5pm, the rand was trad­ing at R13.40 against the dol­lar, R15.28 against the euro and R17.22 against the pound.

John Cairns, an an­a­lyst with Rand Mer­chant Bank, said he felt the rand had over­re­acted to news of the ANC to na­tion­alise the Re­serve Bank and that the ris­ing global bond yields had weighed heav­ily on the lo­cal unit.

“Con­trol of the SARB has al­ways been in the gov­ern­ment’s hands, so noth­ing will ac­tu­ally change, even in the un­likely sit­u­a­tion that the ANC ap­proves the pol­icy pro­posal in De­cem­ber. The SARB will re­main in­de­pen­dent,” Cairns said.

He added that he ex­pected the rand to trade in the range of R13.25 and R13.73 against the green­back this week.

Gov­ern­ment bonds across the globe have seen a sharp up-tick in the past two weeks as mar­kets price in the in­creas­ing pos­si­bil­ity that cen­tral banks adopt a more fun­da­men­tal-driven mar­ket, which will see an in­crease in in­ter­est rates that have been kept low since the 2008 global cri­sis.

Kamilla Ka­plan said she ex­pected the vo­latil­ity of the rand to per­sist this week and to trade in a range of R12.90 to R13.90 against the dol­lar, R14.80 to R15.80 against the euro and R16.80 to R17.80 against the pound.

“The evo­lu­tion of do­mes­tic po­lit­i­cal events could con­tinue in­duc­ing vo­latil­ity in the cur­rency. How­ever, the broader emerg­ing mar­ket back­drop is likely to re­main the key in­flu­enc­ing fac­tor for the rand.

“The col­lec­tive mes­sage from the Euro­pean Cen­tral Bank, US Fed­eral Re­serve, Bank of Eng­land and the Bank of Canada last week, was of mon­e­tary pol­icy tight­en­ing.

But with in­fla­tion broadly be­nign, ag­gres­sive pol­icy nor­mal­i­sa­tion is not ex­pected. This, cou­pled with the pos­i­tive mo­men­tum in global growth and trade, con­tin­ued to sup­port emerg­ing mar­ket port­fo­lio flows,” Ka­plan said.

Macroe­co­nomic sta­tis­tics web­site Trad­ing Eco­nomics said his­tor­i­cally, the rand reached an all time high of R16.84 against the dol­lar in Jan­uary last year and a record low of R0.67 in June 1973.

The notes from the Euro­pean Cen­tral Bank’s June pol­icy meet­ing re­leased last week showed it had dis­cussed drop­ping a pledge to ac­cel­er­ate its bond-buy­ing pro­gramme.

Min­utes from the US Fed­eral Bank, also re­leased last week, re­vealed the bank has a de­sire to hike in­ter­est rates at least one more time this year and be­gin to re­duce its $4.5 tril­lion (R60.22trln) as­set port­fo­lio it had built up to save the econ­omy from the fi­nan­cial cri­sis.

Mamello Mak­inca, an econ­o­mist at First Na­tional Bank, said the bank had low­ered its growth fore­cast for the South African econ­omy for the year to 0.4 per­cent from 0.7 per­cent it had ini­tially fore­casted.

“We be­lieve that the medi­umterm growth prospects will be con­strained by on­go­ing de­lays in the nec­es­sary gov­er­nance changes to lift the per­for­mance of state-owned en­ter­prises; and the im­ple­men­ta­tion of much needed growth-boost­ing struc­tural re­forms, mainly due to height­ened po­lit­i­cal dys­func­tion,” Mak­inca said.

Mean­while, the Bank­ing As­so­ci­a­tion of South Africa (Basa) on Fri­day said the na­tion­al­i­sa­tion of the Re­serve Bank was not a deal-breaker as long as its in­de­pen­dence re­mained in­tact.

Cas Coova­dia, the man­ag­ing di­rec­tor of Basa, said it was in the in­ter­est of all South Africans that the in­de­pen­dence of the SARB was pro­tected.

A ven­dor counts out rand ban­knotes at an African craft mar­ket in Rose­bank. In­sta­bil­ity is largely to blame for the cur­rency’s vo­latil­ity.

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