London, England — 07 December 2012 – The South African rand is set to strengthen almost four percent by this time next year, driven by the recovery of exports in the country’s mining sector, a Reuters poll has shown.
A median of 35 strategists and economists forecast the rand to recover to R8.45 per dollar in a year. It was at R8.782 this week. The currency should pick up steam modestly at the end of February at R8.70 per dollar, before appreciating to R8.58 by the end of May, as the economy gets back on track.
The current account deficit ballooned to its widest deficit in four years, hitting 6.4% of GDP in the second quarter and exerting pressure on the rand. The currency is now more than 10% weaker than at the start of the year.
Miners’ strikes have also hit the world’s biggest platinum producer hard both financially and socially, triggering downgrades from Moody’s and Standard & Poor’s.
The strikes were the main reason for third-quarter GDP growth slowing to 1.2% from 3.4% in the second quarter.
“The market has over-reacted to what happened in the past six months, and we expect some sort of normalisation in the situation,” said Murat Toprak, EMEA strategist at HSBC in London.
“The deterioration we have seen on the trade balance may stabilise and we can have a recovery on the back of a more stable production in the mining sector next year, with a recovery of exports,” Toprak added.
Even though some analysts have begun betting on an interest rate cut in January when the central bank holds its first meeting in 2013, they play down the effect that would have on the currency, as many emerging market peers are easing policy rates.
The central bank has kept its benchmark repo rate at a four-decade low of 5%, cautioning on above-wage settlements that calmed the worst mining unrest since the end of apartheid.
In the short term, the currency will be under pressure in December as investors deliberate over the outcome of the crucial African National Congress conference, in which the ruling party is expected to push for more spending.
The latest Reuters Econometer poll sees growth at 2.5% in 2012 with the lowest forecast at 2.2%, then appreciating to 2.9% next year and 3.5% in 2014.
The Treasury has also cut its growth forecast for this year to 2.5% from 2.7%.
Source: Reuters Africa. For more information, click here.