As contagion continues in emerging markets, the South African rand is no exception. Depreciating by 16% against the greenback since the beginning of the year, USD/ZAR’s steep rise from last Thursday (7.70% from 09/08/2018) is a big hit for the South African Reserve Bank (SARB), which already faced strong ZAR pressure after decreasing its repo rate by 0.25% in March 2018. The SARB decision to maintain its benchmark interest rate at 6.50% during its next policy meeting on 20 September would be more than welcome for the country.
Despite inflation contained within its target band, economic growth remains low while business confidence is on the way to recovery, supported by increasing domestic consumption and manufacturing. We expect the recent ZAR bearish trend to end, as the SARB monetary policy stance is appropriate. Currently trading at 2-year high USD/ZAR is expected to rise further in the short-term, amid global risk-off. Estimated at 14.54, USD/ZAR is heading to 15.
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By Vincent Mivelaz