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JOHANNESBURG – Fitch Solutions, a unit of Fitch group, on Friday said the rand was set for further volatility in the months ahead on persistent policy uncertainty in the run-up to the 2019 elections, due to be held in May.

Fitch Solutions, in a research note, said the rand will continue on a depreciatory trajectory as a combination of structurally high inflation and low growth weighs on the unit in the short term.

“There are clear concerns within the ANC that the party risks losing its majority, and this could see politicians adopt less investor-friendly rhetoric in an effort to shore up popular support. This suggests that the currency will remain vulnerable to downward pressure over the next three to six months,” Fitch Solutions said.

“Over a multi-quarter time horizon, we believe the rand is likely to continue on a depreciatory trajectory. We expect the currency to average R14.10 against the dollar in 2019.”

Fitch said political developments will continue to have a substantial impact on sentiment over the longer term.

Currency analysts from Nedbank in a research note said the bank was comfortable that local and external risks are being better reflected in the currency.

“Although we believe further weakness, at least over the near term, is limited, much would depend on central bank (US Federal Reserve, Bank of Japan and South African Reserve Bank) monetary policy guidance at their respective policy meetings and Moody’s review (March 29) of South Africa’s ratings,” Nedbank said.

A thorny issue for the markets in the lead-up to May’s polls is the independence of the South African Reserve Bank (Sarb).

Despite the ANC’s repeated assurance that it would not tamper with the mandate of the central bank, the rand has tanked every time the word “nationalisation” has been mentioned.

Kamilla Kaplan, an economist at Investec, said the rand was the third-worst performer out of 24 emerging-market currencies, depreciating by 2percent against the dollar last week. “Rand sentiment may have also been dampened by the above-inflationary increase in electricity tariffs, given the possible implications for economic growth and inflation,” Kaplan said.

“Moreover, the president confirmed intentions for the Sarb to be nationalised, which may have raised some concern among investors over the bank’s operational independence going forward.”