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Johannesburg – When President Jacob Zuma’s term as ANC president comes to an end in December, the rand could rally to R11.50/$, said Colin Coleman, head of investment banking of Goldman Sachs sub-Sahara Africa.
Coleman was speaking at the Discovery Financial Planning Summit held in Sandton on Monday.
The rand had strengthened on the back of rumours that the ANC National Executive Committee was planning to remove Zuma and traded below R13/$ last week. It strengthened as much as 2% even after Zuma survived a motion of no confidence by the NEC on Sunday.
READ: Rand shoots over R13/$ on Zuma saga
But following a briefing on Monday by the ANC, where the party affirmed Zuma would remain the president, the rand dipped to R13/$. It closed at R12.97/$ on Monday night.
Coleman explained that following a downgrade of the local debt to sub-investment grade and the subsequent exit of South Africa from the Citibank World Government Bond Index, there would be an outflow of R10bn worth of index related funds. Over time, following structural adjustments the rand would trade at R14/$, he said.
As for other economic indicators, Coleman said Goldman Sachs projects economic growth at 1.5%, mainly based on a rebound of global conditions.
He added that Goldman Sachs expects a rate cut of 50 basis points in the next 12 months. This rate cut would come faster if South Africa was not held “ransom” to political issues, he said.
Ettienne le Roux chief economist at Rand Merchant Bank explained that in light of an economy slowly improving as well as lower inflation, interests rates are also likely to move lower. He explained that the South African Reserve Bank (SARB) is still concerned about the currency which is vulnerable to another sovereign downgrade.
“Barring another external shock or domestic shock, the next move is for interest rates to go lower.”
Le Roux added that the rand was currently the most vulnerable currency in the world. But it could trade between the range of R12/$ and in the case of a downgrade, as much as R15/$.
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