Rand improves after IMF growth concerns dent SA currency

Cape Town – The rand returned to its strong level of R14.31/$ on Wednesday after weakening a day earlier due to a firm dollar and growth concerns about South Africa being voiced.

“For the first time in a while we saw some rand weakness,” said Umkhulu Consulting’s Adam Phillips on Wednesday.

“Having traded below R14.30 yesterday at one stage, it touched R14.44, although there were quite a few exporters around securing rates above R14.40,” he said.

“A strong dollar and a member of the International Monetary Fund (IMF) visiting South Africa were definitely factors affecting it.

“The IMF has been vocal about growth opportunities in SA and the official voiced concerns about corruption and transparency in state-run companies.

“This is something we all know, but when the IMF singles out concerns then we can be assured that the picture will be noted elsewhere.”

David Lipton, first deputy managing director of the IMF, said on Tuesday that “South Africa is grappling with growth that is too slow to raise average living standards, which is deeply problematic when one-third of the working population is effectively excluded from the economy”.

“So far, there has been only limited progress on reforms to remedy that situation,” he said. “The primary goal must be to re-energize growth by seeking inclusion and job creation.

"Improved SOE (state-owned enterprise) governance and operations would send an important signal about accountability, including greater transparency in board appointments and remuneration of executives and board members," he said.

Phillips said the rand will once again move up to R14.40/$ on Wednesday, as “US housing data was very good and the yen remains nervously weak as possible stimulus maybe around the corner”.

Wednesday’s consumer price index (CPI) data could also impact the rand.

READ: Expect rise in inflation a day before repo rate news

Most analysts believe June’s CPI – a measure of South Africa’s inflation rate – will increase to 6.3% from 6.1% in May.

However, RMB analyst Isaah Mhlanga said on Wednesday it would accelerate slightly to 6.2%, driven by increases in transport, housing and household contents.

“Food price inflation presents a risk that the print could be slightly higher than our estimate. We expect core CPI to have risen to 5.6% from 5.5%.”

Given concerns on growth, RMB expects the SA Reserve Bank’s (Sarb's) monetary policy committee (MPC) to keep the repo rate unchanged at 7% on Thursday.

“We have been highlighting this view for some time now, and the improvement in the rand over the past month supports this view,” said Mhlanga.

This corresponds with what all the Bloomberg economists believe will occur on Thursday.

“The market also expects the Sarb to remain on hold, thus we don’t expect the rand to react as much,” said Mhlanga.

“However, should the MPC reveal an increasing concern about inflation expectations in the wake of above-inflation wage demands, we cannot rule out the probability of one more rate hike before year-end.

“In the absence of any surprise concerns from the Sarb, the rand will remain biased towards gaining, driven by global money searching for yield.”

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