Compiled by Dhivana Rajgopaul
JOHANNESBURG - The South African currency traded a touch firmer yesterday after the US president returned to the White House.
At the close of local trade, the rand quoted 0.29 percent stronger at R16.50/$, after trading in range of R16.46/$ - R16.68/$.
However, the rand fell during the New York session as the trade-weighted dollar advance broadly after US stimulus negotiations got cancelled. The expected range of the rand against the dollar today is R16.40/$ - R16.70/$.
Brent crude oil
The Brent oil price was bolstered by US President Trump’s return to the White House and supply disruptions in Norway, including a hurricane in the Gulf of Mexico.
At the close of local trade, benchmark Brent crude futures quoted 3.09 percent higher at $42.71pb. Prices were little changed overnight.
Sarb adopts wait-and-see approach
The South African Reserve Bank (Sarb), in its bi-annual Monetary Policy Review, noted that the country’s economic recovery is likely to be protracted given both the severity of the shock and pre-existing constraints – the central bank expects the economy to return to 2019 levels of output in early 2023.
After contracting by 8.2 percent this year, real GDP is expected to expand by 3.9 percent in 2021 and 2.6 percent in 2022. The most prominent obstacles to a faster recovery, according to the central bank, are electricity shortages and record-high government debt levels.
The central bank communicated a benign inflation outlook. Consumer price inflation is expected to peak at just over 4.5 percent (the mid-point of the Sarb target range) in the second quarter of 2021 before remaining in the bottom half of the target range until the final quarter of 2022.
Inflation is expected to average 4.0 percent in 2021 and 4.4 percent in 2022, up from 3.3 percent this year. In commenting on its policy approach to the pandemic, the review states that the Monetary Policy Committee (MPC) opted to cut rates before the full force of the shock appeared in the data, so as to provide maximum support to the economy early on.
Following the large repo cuts of March, April and May, the MPC has shifted to a ‘wait and see’ strategy, acknowledging that this approach of moving fast and pre-emptively and then slowing to assess new information has at times surprised markets.
Looking ahead, the central bank notes that with domestic interest rates at record lows and inflation apparently having bottomed out, it is likely that the repo rate will move somewhat higher going forward.
However, indications are that this tightening cycle will be very gradual.
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