By Siphelele Dludla for IOL
The rand yesterday rose to a one-year high amid a subdued dollar in spite of rating agencies maintaining their junk status and negative outlook on South Africa’s sovereign debt.
The domestic currency strengthened 0.03 percent to R13.91 against the greenback by 5pm, its highest level since early January last year, on a positive growth forecast.
The South African Reserve Bank (SARB) last week upwardly revised its 2021 growth forecasts to 4.2 percent, from an earlier projection of 3.8 percent.
The rand appears to want to stay below the R14 mark around which it traded last week, despite an increase in global risk aversion.
Investec chief economist Annabel Bishop said the rand continued to benefit from the dollar’s weakness, as investors fear increasing interest rates in the US.
She said the rand was 5.6 percent stronger since the start of this year, leading several other emerging-markets currencies.
Bishop said South Africa would likely record a marked current account surplus in the first quarter of this year because of the boom in the commodity markets, which would boost the rand.
“Absent the global commodity price boom, the rand would not be seeing the degree of strength it has experienced this year against the US dollar,” Bishop said.
“And indeed, the second quarter looks set to record a current account surplus as well.”
On Friday, S&P Global Ratings and Fitch affirmed South Africa’s sovereign rating to sub-investment grade with a negative outlook because of rising government debt and low economic growth.
However, Fitch revised upwards South Africa’s economic growth, saying it would rebound to 4.3 percent this year supported by the base effect and the rise in commodity price, in line with the SARB forecast.
The SARB last week cited an upturn in near-term economic performance and improved public finances.
The bank also unanimously kept its benchmark repo rate unchanged at a record low of 3.5 percent as the Consumer Price Index rose 4.4 percent in April from a year ago on base effects.
Old Mutual Investment strategist Izaak Odendaal said although food inflation was at its highest level since mid-2017, the outlook was better.