3 reasons why analysts are wrong about the rand in 2017
The World’s fourth-biggest foreign-exchange trader, Deutsche Bank, believes that the rand’s predicted 12% drop in 2017 is incorrect.
Speaking to Bloomberg, it provided three reasons why the analysts have got it wrong:
1. Inflation Outlook
“Inflation is slowing. The South African Reserve Bank sees the rise in consumer prices averaging 5.8 percent in 2017, down from a seven year high of 7 percent in February”, said Deutsche Bank economist Danelee Masia.
“That means the yield on South African assets will remain attractive, even as U.S. interest rates rise”.
2. Economy Rebounding
Growth should accelerate to 1.4% in 2017, more than the central bank’s estimate of 1.2%, as companies rebuild profit margins through a combination of cost efficiencies, job cuts and wage restraint, according to Deutsche Bank.
A rebound in agriculture following the worst drought in more than 100 years may also fuel growth, it said.
3. Current-Account Gap
The current-account deficit, is narrowing as subdued demand constrains imports. The shortfall shrank to 3.1% of gross domestic product in the second quarter, from 5.3% the previous three months.
Deutsche Bank predicts it will decline to the smallest margin in six years in 2017, making the rand less vulnerable to capital outflows as the U.S. lifts interest rates.
The rand has faced a rocky year in 2016, with many ups and downs, shifting along with the roller coaster year of Zuma scandals, slowing growth, drought and the local elections.
Economists had predicted that the currency would end the year between R16.50 and R17.00 to the dollar – however they were proven wrong (despite the odds), with the rand currently sitting at R13.72 to the dollar.
The negative predictions did not factor in the many external surprises that hit 2016, however – specifically the UK’s shock vote to leave the European Union which strengthened the rand, as well as the US election which saw businessman Donald Trump claim victory.
These factors, along with South Africa beating the odds and avoiding a downgrade to junk status, were boons to the currency which economists could not predict.
2017’s prospects are still up in the air, with junk status still looming, and the ANC’s elective conference (and associated political campaigning) still to come.
Read: A look at The Arch – a stunning R600 million development planned for Umhlanga
Loading ...