26 Oct 2017

Week Ahead: Trade, private sector credit and PMI updates to all reflect subdued domestic demand conditions

Annabel Bishop

Chief Economist

The rand extended last week’s post Cabinet reshuffle depreciative trend by weakening by a further 3.9% this week.

Figure 1: SA Monetary Policy Committee (MPC) meeting dates for 2017 and 2018

Rand, currency outlook for the week ahead and foreign flows:

Figure 2: USDZAR

The rand extended last week’s post Cabinet reshuffle depreciative trend by weakening by a further 3.9% this week. Much of the weakness occurred after the Medium Term Budget Policy Statement on Wednesday 25th October. The Statement showed a retreat from fiscal consolidation and a deterioration in government deficit and debt metrics. The heightened possibility of sovereign credit rating downgrades to sub-investment grade has weighed on the local currency. Fitch commented that the policy move away from fiscal consolidation is under way and “occurring faster” than the agency expected. Moreover Fitch stated that they “think that divisions in the ANC will persist beyond the party's electoral conference in December, and it is not clear that the political environment will become more conducive to consolidation.”

In the week ahead, the rand is expected to trade in a range of R14.70/USD – R13.70/USD, R17.00/EUR - R16.00/EUR and R19.10/GBP - R18.10/GBP.

Figure 3: Purchasing Power Parity value of the Rand vs USD

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