‘Rand rally has reached its end’

The Star Early Edition - - LETTERS - Ka­belo Khu­malo

BMI RE­SEARCH, a sub­sidiary of Fitch, yes­ter­day said that the rand’s rally was near­ing its end in the face of cool­ing mar­ket sen­ti­ment to­wards emerg­ing mar­ket cur­ren­cies and a grad­ual shift to­wards mon­e­tary eas­ing in South Africa, and ex­pected the SA Re­serve Bank to em­bark on an even more grad­ual rate cut­ting cy­cle.

In an Africa Mon­i­tor re­search note, BMI said that the lion’s share of the rand’s ap­pre­ci­a­tion was be­hind South Africa and af­ter av­er­ag­ing R13.21 to the dol­lar in the year to-date, the group fore­cast the rand would av­er­age R13.03 against the green­back for the rest of the year.

“The rand’s multi-quar­ter rally is likely near­ing an end, in the face of cool­ing mar­ket sen­ti­ment to­wards EM FX and a grad­ual shift to­wards mon­e­tary eas­ing. Over the long term, struc­turally high in­fla­tion and tepid growth look poised to ex­ert fur­ther down­ward pres­sure on the rand.

“Should we be­gin to see ap­petite for riskier as­sets fade, the detri­men­tal im­pact on the rand of po­lit­i­cal machi­na­tions could be far more long-stand­ing, in­creas­ing the po­ten­tial for greater-than ex­pected im­ported price pres­sures,” BMI said. The re­search note came just a day be­fore to­day’s ex­pected re­view of South Africa’s credit rating by Moody’s.

The rating agency spooked the rand to a three month low last week when it re­leased its re­search note on South Africa and warned that pres­sure seemed to be grow­ing on the cen­tral bank, and the Trea­sury, to im­ple­ment ex­pan­sion­ary poli­cies.

Moody’s said while it wel­comed the cen­tral bank’s first in­ter­est rate cut in 2012, it also in­di­cated po­lit­i­cal pres­sure on the bank. The rating agency also warned that it viewed the Re­serve Bank’s in­de­pen­dent mon­e­tary pol­icy as a key pil­lar in its as­sess­ment of South Africa’s grad­u­ally de­te­ri­o­rat­ing in­sti­tu­tional strength.

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