Rand could get a boost

Graphic: renjith krishnan

Graphic: renjith krishnan

Published Aug 1, 2012

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A new round of policy easing from the world's major central banks could restore appetite for riskier emerging market currencies, boosting South Africa's rand in twelve months, a Reuters poll showed on Wednesday.

The rand will struggle to make gains in the next three months, according to the poll of 32 analysts, but it should strengthen eventually from current levels around 8.2361 per dollar, firming almost 3 percent to 8.00 in 12 months.

While the euro zone's debt crisis has left financial markets fraught with volaility, hurting riskier currencies like the rand, efforts to solve Europe's economic problems could restore some stability.

“We see the European Central Bank, and probably the US Federal Reserve being forced to undertake additional and more aggressive (action) as the euro zone crisis takes another turn for the worse going into year end,” said Peter Attard Montalto, emerging market economist at Nomura.

The European Central Bank is due announce interest rates on Thursday, following the US Federal Reserve's Federal Open Market Committee two-day meeting which concludes on Wednesday at 20:15 SA time.

The Federal Reserve is likely to show that it is ready to act against a weakening US economy but analysts think it will stop short of aggressive measures for now.

The rand has struggled to make headway this year, erasing gains it made in the first quarter of the year to being hammered to a year low of 8.71 against the dollar early last month on jitters about the health of the global economy.

Ultra-low yields in many US and European asset classes has at least encouraged capital flows into South African bonds, although not enough to boost the volatile rand, which has a habit of fluctuating in times of trouble abroad.

“If risk appetite picked up on a more sustained basis, then we would see emerging markets benefiting, and the rand would benefit a lot more whole heartedly from the capital inflows,” said Michael Keenan, an analyst at Absa Capital.

The central bank unexpectedly cut its benchmark interest rate to a 40-year low of 5 percent last month, citing a weaker economic outlook, but warned monetary easing on its own would not solve the country's challenges. - Reuters

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