{"id":651919,"date":"2022-12-14T16:24:05","date_gmt":"2022-12-14T14:24:05","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=651919"},"modified":"2022-12-14T16:40:03","modified_gmt":"2022-12-14T14:40:03","slug":"good-news-for-the-rand-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/651919\/good-news-for-the-rand-in-south-africa\/","title":{"rendered":"Good news for the rand"},"content":{"rendered":"

Easing political turmoil in South Africa may help turn the rand from this month\u2019s emerging-market pariah into an outperformer next year.<\/p>\n

Strategists at Societe Generale SA and Credit Agricole CIB expect the currency to be in a sweet spot next year, given the rand has much in its favor: a healthy interest-rate differential with the dollar, a still-hawkish central bank, and rising demand for South Africa\u2019s commodity exports as China reopens its economy.<\/p>\n

\u201cDespite the heightened political uncertainties, we remain positive on the rand,\u201d SocGen strategists including Phoenix Kalen and Marek Drimal wrote in a note.<\/p>\n

\u201cWe expect two more rate hikes by the South African Reserve Bank and expect China\u2019s reopening from zero-Covid will boost sentiment around the rand.\u201d<\/p>\n

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South Africa\u2019s Reserve Bank is seen lifting its policy rate by at least another 50 basis points to a peak of 7.5% by November next year, according to rates-market pricing.<\/p>\n

With the Fed widely expected to slow its pace of rate increases next year \u2014 or even halt them altogether \u2014 that would maintain the rand\u2019s yield advantage over the dollar, boosting the rand\u2019s carry appeal. The South African currency has already returned 7.5% since the beginning of November for investors who borrow the US currency to speculate in higher-yielding assets.<\/p>\n

\u201cWhen the dust settles\u201d after this year\u2019s high inflation and aggressive monetary tightening in the developed world, some markets \u201cmay present an attractive mix of high carry and stronger growth outlook,\u201d Credit Agricole strategists including Sebastien Barbe and Olga Yangol wrote in a note.<\/p>\n

The rand\u2019s \u201crelatively high carry and terms-of-trade positioning\u201d makes it one of the best EM prospects for 2023, they said.<\/p>\n

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Rand bulls received a boost on Tuesday when South Africa\u2019s lawmakers quashed an advisory panel\u2019s report that recommended President Cyril Ramaphosa should face an impeachment hearing for possible breaches of the constitution. Softer-than-expected US inflation data also helped gains.<\/p>\n

The currency has gained 2.5% in the past two days, erasing the losses it racked up after the Ramaphosa report was made public on Nov. 30 and the president considered resigning. Even so, the rand is the most undervalued in two years on a real-effective-exchange-rate basis, according to Bank for International Settlements data.<\/p>\n

The rand has a \u201cpromising mix of carry\/FX potential,\u201d the Credit Agricole strategists wrote. The currency is \u201cnot expensive,\u201d though politics remains \u201c\u2018a swing factor and structural changes are needed,\u201d they said.<\/p>\n

The rand is currently trading at (14 November 2022):<\/p>\n