Rand seen gaining this year

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IOL world currency1 Graphic: Renjith Krishnan.

The rand is set to strengthen nearly four percent to the dollar this year as South Africa's trade deficit stabilises and the global economy gains traction, a Reuters poll showed on Friday.

The rand underperformed last year, shedding almost five percent since the start of 2012 due to a ballooning current account deficit and worst labour unrest in South Africa since the end of apartheid in 1994.

The poll of 24 analysts and strategists see the rand firming to 8.325 against the dollar in 12 months from now, from 8.6525 currently.

“We are likely to see the trade deficit stabilise over the course of the year which should remove some of the negative pressure in the currency,” said Manik Narain, emerging markets strategist at UBS.

The current account deficit ballooned to its widest in four years, hitting 6.4 percent of GDP in the second quarter and exerting extra pressure on the weaker rand.

A heavily traded and highly volatile emerging market currency, the rand is expected to benefit from an improving global economy.

“The other view is of the generalised recovery in global risk assets based on the idea of a recovery in global growth, encouraging inflows into emerging markets and South Africa.” added Narain.

According to the Reuters South Africa Econometer poll, growth is expected expand 2.7 percent this year from a 2.3 percent forecast for 2012 in the same survey.

The Reserve Bank recently left its repo rate at a four-decade low at 5.0 percent to balance weakening economic growth against inflation worries fuelled by the weaker rand.

The rand typically underperforms in the first quarter of the year. It is expected to gain just over one percent to 8.55 in a month, retreat back to 8.60 in three months before strengthening to 8.52 against the dollar in by mid-year. - Reuters

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