The rand was caught in a ‘perfect storm’ on Friday
The 'perfect storm' for the rand on Friday
The main reason for the weakening of the currency was the announcement by the European Central Bank of weaker economic growth expectations.
During the past week, a substantial amount of local data influenced the market, the most prominent being the movement of the rand on Friday. Although mainstream media would have us believe the move to R14.50 against the USD was the result of president Cyril Ramaphosa’s affirmation of government’s plans to nationalise the central bank, this is only partly true.
According to economists, the rand was caught in a ‘perfect storm’ on Friday. The main reason for the weakening of the currency was the announcement by the European Central Bank of weaker economic growth expectations. Global emerging market currencies weakened against the USD, with Turkey’s lira losing 0.2%. The emerging market currencies index of Morgan Stanley Capital International (MSCI), which compiles influential indexes tracked by thousands of fund managers, slipped 0.3% to wipe away all gains yielded over the past two-and-a-half weeks.
Topping the news from Europe was the local energy regulator’s announcement that electricity prices will rise by 9.41% in 2019/2020, 8.1% in 2020/2021 and 5.2% in 2021/2022. Eskom’s announcement of above inflation increases will have a negative effect on inflation and will continue to influence the SA currency.
As far as president Ramaphosa’s announcement on nationalising the SA Reserve Bank (SARB) is concerned, South Africa is one of only six countries globally with a “private” reserve bank. Shareholders have no influence in the running of the SARB, the president of the country appoints the governor of the Bank, while the National Treasury dictates the Bank’s mandate.
Positive news concerning the local economy is that a growth of 1.4% in the fourth quarter of 2018 brought about an annual real GDP increase of 0.8% in 2018. This is 0.1% more than the projections of most economists. Although not enough for what South Africa need now, this is a step in the right direction.
Local equity markets closed the week softer in line with international markets. The all-share index (ALSI) lost 1.02%. The main contributor was the financial sector, with a loss of 2.22%, mainly on the back of the softer currency.
The rand rebounded from levels of R14.50 to around R14.44 against the USD over the weekend, with expectations of further strengthening in the coming week.
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