However, the rand remains stubbornly weak and refuses to fall below the psychological R19-mark to the greenback.
THE RAND remained virtually unchanged at R19.25 to the US dollar on Tuesday due to some positive domestic news, moving further away from a record low of R19.85/$1 touched late last month.
This was a slight improvement after the rand closed 1.2% firmer at R19.27 on Monday and 3.25% stronger since hitting a record low of R19.91 on Thursday last week.
However, the rand remains stubbornly weak and refuses to fall below the psychological R19-mark to the greenback.
Nevertheless, investors welcomed the latest data which showed South Africa’s economy averted a technical recession in the first quarter, despite record levels of load shedding.
Statistics South Africa on Tuesday reported that the economy grew by 0.4% in the first three months of 2023, narrowly surviving a technical recession following an upwardly revised 1.1% decline in the fourth quarter of 2022.
TreasuryONE currency strategist André Cilliers said he had expected some consolidation in the rand ahead of the first-quarter gross domestic product (GDP) number.
“The political tensions around (Russian President Vladimir) Putin’s attendance at the BRICS summit seem to be on the back burner for now, while the likelihood of the US Federal Reserve skipping a rate hike at next week’s Federal Open Market Committee has also stabilised the local currency,” Cilliers said.
The ongoing severe power crisis in the country continues to pose upside risks to the inflation outlook, which could lead the central bank to either raise interest rates again in July or pause to assess the impact of the previous hikes.
The SA Reserve Bank (SARB) raised its policy rate again on May 25 by 50 basis points to a 14-year high of 8.25%, in an effort to rein in inflation expectations and support the currency.
South Africa’s annual inflation rate fell to an 11-month low of 6.8% in April, down from 7.1% in March, but still above the upper limit of the SARB’s target range of 3%-6%.
Citadel chief economist Maarten Ackerman said the battered rand was of great concern.
Ackerman said the rand’s woes, coupled with the “no-growth environment”, meant the SA Revenue Service was not able to meet its tax collection targets, forcing the Treasury to borrow more, which will increase the country’s debt-to-GDP ratios and negatively impact the local currency again.
“The country’s current account deficit has seen us pay more in foreign currency to secure our imports, placing the local currency under pressure,” he said.
“Global liquidity is also drying up as we see cracks developing in larger economies. Only when rates start to normalise, which we expect in the second half of the year, will the dollar come under renewed pressure, and possibly boost the rand.
“This was especially concerning in light of today’s GDP announcement –the government’s final consumption increased by 1.2%, which will put more pressure on the national budget.”
Meanwhile, stocks on the JSE ended the day on a positive note as well, as investors were digesting economic growth data.
The JSE All Share index reversed course to close about 0.3% up at 76 840 points on Tuesday, boosted by financials and as resource-linked sectors moved into positive territory.
– BUSINESS REPORT
