Rand struggles to find range on the dollar
JOHANNESBURG - THE RAND recovered some lost ground yesterday appreciating 0.14 percent to R15.25 against the dollar as concerns surrounding an extension of the adjusted level 3 lockdown were offset by optimism over vaccine progress.
The rand reached R15.18 to the greenback at some point, boosted by further renewed appetite for South African bonds from foreigners, who made net purchases of R2.7 billion.
However, by 5pm, it exchanged hands at R15.25 against the dollar.
Economists warned that the rand was likely to remain volatile and not provide much countervailing force to rising oil prices.
Oil prices have jumped to $56.70 (R873.77) per barrel from $47.40 per barrel at the start of December for Brent spot. This has placed upwards pressure on South Africa’s fuel prices so far this year and consumer inflation could lift by more than expected.
Another petrol price increase of almost R1 currently scheduled for February is expected to exert substantial upwards price pressure on consumer inflation following an increase of 40 cents per litre this month.
Investec chief economist Annabel Bishop said the strength of the rand in December shielded South Africa from a larger rise in fuel prices.
The rand strengthened from R15.47 to the dollar at the end of November to R14.69 by the end of December, but then weakened over most of this month.
“The strengthening of the global recovery, along with the lift in commodity prices, will also support inflation, while the rand has pulled back from recent heavily overbought levels at the start of the year, it will likely remain volatile,” Bishop said.
“The rand cannot be relied upon to provide much of a countervailing force to higher oil prices as the key energy commodity sees an elevated level compared to last year’s suppressed average value.”
The fiscal situation within the South African government remains dire and will be under pressure for a while still to come.
Manufacturing production data this week confirmed long-standing worries about the health of the sector as demand continued to be lower than expected.
Anchor Capital’s Nolan Wapenaar said the market was hypothesising about the possibility of a further 0.5 percent interest rate cut from the SA Reserve Bank (SARB) next week.
“However, Wapenaar said that rising inflation rate and the SARB’s already accommodative stance will mean that it will rather stay on hold, for now. We expect the first interest rate hike is more likely to be in 2022 than this year,” Wapenaar said.
“The primary risk to our view is that should further lockdowns become necessary, we might see more interest rate cuts in 2021.”