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NAD strength improves inflation outlook- PSG

19/02/2018
by Kelvin Chiringa
Business

Following the break-up of the political impasse in South Africa and the consequent rise of Cyril Ramaphosa to the presidency and fall of Jacob Zuma, the Namibian dollar strengthened enough to improve the inflation outlook, says PSG analyst Eloise du Plessis.

The currency was trading below Nad11.65 to the US dollar last week Friday.

The annual inflation rate for January 2018 stood at 3.6 percent compared to 8.2 percent recorded in January 2017, however on a monthly basis, inflation rate increased from 0.2 to 1.6 percent, says statistician General Alex Shimuafeni.

Namibia’s inflation remains significantly low and annual inflation averaged 6.2 percent in 2017 compared to that of 6.7% the previous year, central bank statistics indicate.

PSG says inflation risks for Namibia and South Africa remain somewhat tilted to the upside.

“These risks mostly pertain to the uncertain outlook for the Namibian dollar (pegged on par with the rand), which may prove vulnerable to developments relating to South Africa’s political environment or a faster pace of monetary tightening in the US. Higher crude oil prices also pose an upside risk to the inflation outlook in both countries.”

“Having said that, the Namibian dollar has appreciated significantly since December 2017, thanks to market-favourite Mr. Cyril Ramaphosa’s election as president of the ruling African National Congress (ANC) party,” says Du Plessis.

However, the analysts caution that the economies of both countries remain under pressure, “with Namibia expected to record slightly negative real GDP growth in 2017, whereas we forecast meagre growth of 1% for South Africa. At the same time, inflation is forecast to continue to moderate to 5% or lower in both countries in 2018.”

The fate of the Nad is tied to how Ramaphosas will manage to improve South Africa’s fiscal balance, provide more clarity regarding policy and clean up corruption.

According to Bloomberg, investors are also holding on their breath with regards to who next the new statesman will appoint as finance minister.

“The confidence inspiring Cyril Ramaphosa will now become the President of the RSA at a time when a sovereign credit rating downgrade hangs over the country in light of their fiscal struggles. The upcoming State of the National Address (SONA) will reveal Mr. Ramaphosa’s grasp of the macroeconomic reality of the country that he has inherited and whether he has a feasible strategy to save SA,” says Capricorn Asset Management’s Claudia Boamah. 

Jacob Zuma’s decision to commit political Seppuku, is not the antidote to all of South Africa’s woes but it signifies the dawn of a new day and for that many are relieved, adds the analyst

Ramaphosa has been the markets’ favourite and he came to the helm of South Africa’s highest office after the beleaguered Jacob Zuma left the the office in a last minute huff to avoid the embarrassment of impeachment.

“Nevertheless, the currency’s strength hitherto has already improved the inflation outlook to the extent that we still believe that there is scope for further monetary policy loosening and, therefore, we forecast a 25 bps cut in the repo rate, probably at the SARB’s next meeting in March. This would then give the BoN room to also cut its repo rate by 25 bps at its next meeting in April,” says Du Plessis.