Rand sinks to 15 to the greenback
Fallout over poor first quarter growth and bickering by ANC leaders over Sarb mandate
THE RAND yesterday depreciated to its lowest level this year, breaching the R15 mark against the dollar as Moody’s warned that reviving the South African economy would be a difficult and prolonged process, while the fallout over poor first quarter growth and the bickering by ANC leaders over the mandate of the SA Reserve Bank (Sarb) weighed on the local unit.
The local currency, which has slumped more than 11 percent since January, exchanged hands at R15 against the greenback as domestic issues continued to drive its direction.
The local unit was bid at R14.46 on Tuesday before first quarter growth numbers were released.
Moody’s said it expected the undersiege Sarb to cut interest rates to alleviate pressure on the embattled economy, which plunged the most in ten years in the first quarter of the year.
Moody’s is the only one of the major rating agencies that still has the country’s sovereign debt above junk. It said South Africa’s economic weakness was due to lacklustre domestic private sector demand – both household spending and investment.
Madhavi Bokil from Moody’s said that turning South Africa’s economy around was a challenging ask.
“We project 1 percent growth in 2019 and 1.5 percent in 2020. In May, the Sarb Monetary Policy Committee (MPC) kept its repo rate unchanged at 6.75 percent by three votes to two,” Bokil said. “At 4.4 percent in April, inflation remains well contained. We expect the central bank to cut the policy rate in the upcoming meetings, in support of the economy.”
The Sarb kept its benchmark repo rate unchanged at 6.75 percent in its MPC last month, but with a more dovish tilt. Data from Statistics South Africa rattled the markets, with first quarter gross domestic product (GDP) print coming in worse than thought with the economy having plunged 3.2 percent in the period.
FNB chief economist Mamello Matikinca-Ngwenya said this week’s disappointing GDP print reaffirmed the lender’s view of easier monetary policy.
“We expect the ongoing weakness in both domestic and external demand to constrain production-side growth. Given the significantly weak growth outcome relative to the Sarb’s expectation and benign inflation outlook we expect the Sarb to cut the repo rate by 25 basis points at the next MPC meeting,” Matikinca-Ngwenya said.
The rating agency further flagged the negative impact of widespread power outages on the manufacturing and mining sectors in the first quarter as having played a pivotal role in the downbeat GDP data.
However, data from StatsSA showed electricity generation increased by 1.8 percent year-on-year in April following poor first-quarter power generation.
Investec economist Lara Hodes said electricity generated and consumed edged up in April, following a drop in the first three months of the year.
“Barring this moderate lift in April, the mounting costs of electricity, coupled with its inconsistent supply continue to plague industry, especially the energy-intensive mining and manufacturing sectors,” Hodes said.