SA’s risks priced in – economist

The recent slump in the rand is over and the currency will hover around current levels in the coming year as investors shrug off credit rating reviews and domestic elections, a Reuters poll found.

At the time of the last poll in early February, the rand was up about 7% on the year and forecasters then said it would only lose about half those gains in the next 12 months.

But the currency shed the whole 7% last month as concerns about the US-China trade war and power blackouts cast a shadow over South Africa’s economic prospects.

So, in a February 28 to March 5 poll of 30 foreign exchange strategists, the 12-month consensus was slashed from February’s. The rand is now forecast to be at R14.20 per dollar in a year compared to R13.85 predicted last month.

Heavily traded, the rand often either leads or lags the pack of emerging market currencies in bouts of market volatility due to changes in global risk sentiment rather than investors’ view of local fundamentals.

“The rand would probably continue to swing up and down until the elections in May,” said Rafiq Raji, managing director and chief economist at Macroafricaintel in Lagos, Nigeria.

On Tuesday, the rand firmed after data showed the recovery from a recession in the first half of 2018 continued in the final quarter. It later retreated, however, and was trading at about R14.3 per dollar yesterday.

Official data showed South Africa’s current account deficit narrowed to 2.2% of gross domestic product in the fourth quarter, a good omen for the local currency, and a Reuters poll found economic growth was expected to accelerate. But fiscal constraints and weak growth were highlighted in the budget last month amid efforts to save Eskom, exposing the limited room President Cyril Ramaphosa has to fix the economy ahead of an election in May.

The ANC will face stiff competition from opposition political parties.

“Unless something highly negative happens, like a big Ramaphosa scandal, I think most of the envisaged risks have been priced in,” said Raji. – Reuters