By Esther Dzviti
Harare - The South Africa Rand (ZAR) is likely to weaken back up to around 15 rand per US dollar. According to an Absa Bank Research report, the ZAR is to weaken to R15.16/USD by the end of Q1 and reach R16.13/USD by year end.
“We expect the ZAR to be particularly vulnerable to capital outflows during the first half the year
because we believe Moody’s is likely to downgrade South Africa’s local currency credit rating in
March (which in turn will eject SAGBs from the World Government Bond Index) at the end of March,
while JP Morgan is scheduled to further reduce South Africa’s bond weighting within its emerging
market bond index during the first half of 2020.
“The ZAR could weaken by more than we expect if the SARB cuts policy rates by more than the market currently expects and/or the economy falls back into recession. Conversely, the ZAR might prove to be more resilient than we believe if global volatility levels continue to subside on the back of reduced global trade tensions, which in turn could rekindle the ZAR’s carry trade appeal. Any further improvement in South Africa’s terms of trade might also support the ZAR”, stated the report.
The South African rand has been struggling over the year 2019 on the back of various social economic and political factors. However, the beginning of the year has not made it easy for the currency as analysts have predicted that the currency may further weaken on the setting of the forecasted global recession and the outbreak of the coronavirus.
In January, the South African Reserve Bank voted unanimously to trim its benchmark repo rate by 25bps to 6.25 percent during its January meeting, while markets had expected it to be kept steady, citing the country's persistent economic vulnerability. It was the first rate cut since July, bringing borrowing costs to the lowest level since November 2015.
According to Trading Economics, policymakers noted that monthly inflation has been lower than the mid-point target and that inflation expectations continued to moderate gradually. In light of the unexpected interest rate cut, some analyst believe that the move will give a boost to the economy which may impact positively on the currency.
“The cut on the interest rates suggests the decision will boost South Africa’s economy, which may positively impact the currency. However, stability within the economy will still be needed commented,” Tatenda Nyachiga, an economic analyst.
The USD/ZAR increased 0.0182 or 0.12% to 15.2251 on Wednesday, February 26, from 15.2069 in the previous trading session. The Economic Agency Forecast’s the USD to ZAR on Thursday, 27 February; exchange rate to be 15.30 rands, maximum 15.53, minimum 15.07. USD to ZAR prediction on Friday, February 28, exchange rate to be 15.46 rands, maximum 15.69, minimum 15.23. USD to ZAR forecast on Monday, 2 March exchange rate to be 15.37 rands, maximum 15.60, minimum 15.14. USD to ZAR