Currency gains as trade figures shine

THE rand strengthened against the dollar yesterday after the current account deficit narrowed more than economists’ forecasts.

The narrowing in the mining and manufacturing exports rebounded in the fourth quarter from wage strikes and as lower oil prices cut import costs.

In spite of this much welcomed development, economic commentators warned that the SA Reserve Bank was still concerned about the potential impact of impending US monetary policy tightening on the rand and inflation projections.

The rand gained as much as 0.2 percent after the release of the current account data, erasing an earlier decline of 0.3 percent. The rand was trading at R12.3906 against the dollar at 5pm, having opened at R12.3970.

Deficit shrinkage

Data in the Reserve Bank’s quarterly bulletin showed the current account deficit shrank from 5.8 percent of gross domestic product in the third quarter to 5.1 percent in the fourth quarter. The shrinkage was better than the market consensus of 5.8 percent.

This was due to slower growth in gross domestic expenditure than in gross domestic production.

The Reserve Bank said even though global economic activity lost some momentum in the fourth quarter, South African export volumes picked up notably, in part due to reduced strike activity, relatively favourable conditions in some export destinations and the more competitive exchange value of the rand.

It said benefiting from a reduction in strike activity and increased global demand, exports, largely mining and manufacturing goods, advanced by 2.9 percent and 5.3 percent respectively in the third and fourth quarters.

Simultaneously, relatively weak growth in domestic demand moderated the increases in import volumes.

As a result, the country’s annualised trade deficit narrowed from a revised R77 billion in the third quarter to R35bn in the fourth quarter.

This week is about the US Federal Reserve’s policy meeting and its intentions on interest rates.

Gina Schoeman, an economist at Citi Research, said: “We remain bearish on the dollar/rand, noting that this is dependent on the Reserve Bank’s ability to raise interest rates when the Fed starts to hike.”

Nedbank Economic Unit said domestic economic activity improved in the fourth quarter, but this reflected a gradual normalisation after labour-related disruptions earlier in the year.

The Reserve Bank said growth in real final consumption expenditure by households accelerated further from an annualised rate of 1.1 percent in the third quarter to 1.6 percent in the final quarter. It said the higher level of spending by consumers could be ascribed to an increase in disposable income of the household sector.

Having increased at a rate of 2.9 percent in 2013, growth in real consumption expenditure by households moderated to 1.4 percent in 2014, the lowest rate of increase in household spending since 2009.

The ratio of household debt to disposable income eased to 77.6 percent over the quarter from 78.1 percent in the third quarter.

Twelve-month growth in unsecured lending decelerated sharply from a high of 30.1 percent in January 2013 to a low of 0.2 percent on July 24.