Following the Recent repo rate hike to 5.75% affected by South African Reserve Bank (SARB’s) monetary policy Committee (MPC), Standard Bank Namibia (SBN) foresee a biased rand towards major currencies.
SBN head of Global markets, Chantal Poultney says, “an apparent lack of rebalancing and weak domestic growth, together with the risk of a less emerging markets (EM)- friendly global financing environment as the Federal moves closer to hiking interest rates will keep the rand biased toward weakness over the medium term.”
Poultney added that, “We see the US dollar/ rand exchange rate ending third quarter 2014 at 10.60 and the fourth quarter 2014 at 10.75.
These target level represent the mid points of an expected trading range, and we fully anticipate that the currency will move to extremes above and below these mid points.”
She noted that the South African Minister of Energy in delivering her budget vote to parliament earlier last week announced that the financial close deadline has been shifted out to November 2014;
“this speaks to a Bank stuck in a stagflation ‘dilemma’ whose preference is to stand still, unless inflation risks are seen as sufficiently pronounced to endanger its credibility. The extent of any perceived threat to its inflation fighting credentials will determine the degree to which it will act, that is the increment of any hike the bank feels it is forced into,” she said.
However Poultney added that as long as the tug from stagnant/ deteriorating growth else remains so acute, she feels that the Bank will pause when the inflation outlook and inflation expectations allow.
“We stick with our view that the SARB will be forced into a further 25 basis points of tightening this year, although we do not have a particularly strong conviction that some catalyst will emerge which will prompt enough of a deterioration in the inflation outlook and or signal of an unhinging of inflation expectations to force the SARB to act,” she said.
She further says that the recent BRICS nation’s announcement of further steps in the establishment of the long awaited Contingency Reserve Arrangement (CRA) is beneficial to SA’s rand.