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Markets

High-flying South African rand set for first red week in four

  • The country still suffers from chronic unemployment, and we still can't see a strong argument for an accelerated recovery that would propel core inflation beyond the SARB's comfort zone.
11 Jun 2021

LONDON: South Africa's rand inched higher in early Friday trading, but it didn't look like being enough to save 2021's top performing emerging market currency from its first weekly fall in four.

The opening flurry of dealing nudged the rand up to 13.56 against the dollar, 0.3% stronger than Thursday's close and still within touching distance of a 28-month high hit last week.

As well as a general consolidation in FX markets this week, South Africa was officially declared to be in its third wave of COVID-19 infections on Thursday, as the continent's worst-hit country registered 9,149 new cases.

There has been stronger-than-expected GDP data but there has also been an ongoing reminder of the country's chronic power problems, as state-run energy firm Eskom has been forced to extended planned electricity outages.

"We doubt that SARB (South African central bank) will find enough arguments to tighten (raise interest rates) soon, especially with the deflationary force of the strong currency appreciation over the last few months," analysts at Brown Brothers Harriman said in a research note.

"The country still suffers from chronic unemployment, and we still can't see a strong argument for an accelerated recovery that would propel core inflation beyond the SARB's comfort zone."

Those kinds of forecasts, along with a global rally in bonds this week, has been good for South Africa's heavyweight government bond market. On Friday the yield on the benchmark 2030 issue was down at a 3-1/2 month low 8.57%. Yields move inverse to price.