Analysts predict rand recovery

Dec 05 2012 16:48
Johannesburg - The rand is set to strengthen almost 4% by this time next year, driven by the recovery of exports in the mining sector of Africa's biggest economy, a Reuters poll showed on Wednesday.

A median of 35 strategists and economists forecast the rand  to recover to 8.45/$ in a year. It was at 8.782 on Wednesday.

The currency should pick up steam modestly at the end of February at 8.70/$, before appreciating to 8.58 by the end of May, as the economy gets back on track.

The current account deficit ballooned to its widest deficit in four years, hitting 6.4% of GDP in the second quarter and exerting pressure on the rand. The currency is now more than 10% weaker since the start of the year.

Miners' strikes have also hit the world's biggest platinum producer hard both financially and socially, triggering downgrades from Moody's and Standard & Poor's.

The strikes were the main reason for third-quarter GDP growth slowing to 1.2% from 3.4% in the second quarter.

"The market has over-reacted to what happened in the past six months, and we expect some sort of normalisation in the situation," said Murat Toprak, EMEA strategist at HSBC in London.

"The deterioration we have seen on the trade balance may stabilise and we can have a recovery on the back of a more stable production in the mining sector next year, with a recovery of exports," Toprak added.

Even though some analysts have begun betting on an interest rate cut in January when the SA Reserve Bank holds its first meeting in 2013, they play down the effect that would have on the currency, as many emerging market peers are easing policy rates.

Sarb has kept its benchmark repo rate at a four-decade low of 5.0%, cautioning on above-wage settlements that calmed the worst mining unrest since the end of apartheid.

In the short term, the currency will be under pressure in December as investors deliberate over the outcome of the crucial African National Congress conference, in which the ruling party is expected to push for more spending.

The latest Reuters Econometer poll sees growth at 2.5% in 2012 with the lowest forecast at 2.2%, then appreciating to 2.9% next year and 3.5% in 2014.

The Treasury has also cut its growth forecast for this year to 2.5% from 2.7%.

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rand  |  mining unrest  |  economy  |  gdp



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