Cape Town - South African Reserve Bank (Sarb) governor Gill Marcus
's comments on the rand on Friday are viewed by analysts not only as a very soft form of intervention, but as part of a much more open communications style from the bank on forex and fair value - a framework that was totally unthinkable under former governor Tito Mboweni
Numura emerging market economist Peter Attard Montalto
on Friday referred to Marcus' comments on the rand as interesting, and said they should be taken in context of the wider monetary policy committee (MPC) view on forex and so "taken with a pinch of salt".
The currency weakened to a near four-year low at R9.18 to
the dollar on Thursday, according to I-Net Bridge, and was trading at R9.11 to the dollar on Friday morning.
It has been the worst-performing emerging market currency
this year‚ depreciating by more than 7% against the dollar.
"The Sarb thinks fair value is around R8.50-R8.75. Therefore, by definition where we are now is overdone," said Montalto.
"However, equally she (Marcus) has said before - and so have many others in MPC - that they fully expect the rand to overshoot in both directions vs fair value, and equally are not going to be doing anything specific (ie intervention or reserve accumulation wise) to stop that.
"The continuing inflation risk concern however that Marcus also raises continues to rule out another rate cut, barring a growth shock (which may come from US/Italy of course)," said Montalto.
Marcus' comments say more about the rates outlook than they do about forex, continued Montalto.
"We think the still present concerns around a wage-inflation spiral, leveraged by a now undervalued rand in the Sarb's view (on a short not long run basis given the structure of their model, we should note), all means that the MPC's natural desire (or one might even say bias or urge) to cut on weak growth is ruled impossible at present.
"We have presented this before as balancing act between growth and inflation shocks - inflation is now winning."
Said Montalto: "However, a more bearish global growth (and global risk shock) outlook that we have means we still must highlight the larger risk of a cut than the market widely anticipates, even if it continues to not be out baseline.
"Equally, with our expectations of the dollar-rand reaching R9.25 by the end of the second quarter (given increased violence and protest action around the wage round, as well as the progression of mining sector retrenchments) we must expect some more of this soft verbal intervention."
However, said Montalto, "with no prospect of a corrective/offsetting hike nor intervention the market will - after some short run correction that we are now seeing - be able to continue on that path higher and discount further verbal interventions".
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