Fitch’s research arm is bullish on the rand, but warns risks remain
BMI Research says the recent unemployment data that showed joblessness was retreating indicate that the worst may be over for the South African economy
The rand’s strengthening trend from a R16.78/$ peak in January 2016 to under R13/$ since Wednesday is likely to continue this year, BMI Research said in a note on Friday morning.
"We are now forecasting the rand to end 2017 at R12.80/$ from our prior forecast of R14.25/$ and average R12.75/$ in 2018," BMI said.
Recent signals that the worst may be over for the South African economy included the fourth-quarter unemployment report released by Statistics SA on Tuesday that showed joblessness retreating, the report said.
BMI, which is a sister company of the ratings agency within the Fitch Group, stressed much of its bullishness on SA and the rand hinged on government policies.
"For example, should Deputy President Cyril Ramaphosa not only win the ruling ANC’s December national elective conference but benefit from a strong political mandate from his party, this would allow him to begin to enact crucial growth-supportive reforms. Measures to reduce uncertainty of mining firms (such as addressing concerns over the mining charter amendment) and to improve the governance of state-owned enterprises could substantially bolster foreign firms’ willingness to participate in the South African economy, ensuring more rapid progress towards economic diversification. In turn, the more favourable growth dynamics could boost economic competitiveness and the rand.
"On the other hand, even despite the bullish break, we cannot rule out the risk of a downside surprise. Rumours continue to swirl that President [Jacob] Zuma may be tempted to enact a Cabinet reshuffle in the coming months, which could include the eviction of well respected Finance Minister Pravin Gordhan and a decision to include his ex-wife Nkosazana Dlamini-Zuma as a minister. If this were to occur, we believe investor sentiment would turn against SA sharply, resulting in a sell-off similar in scope to that seen during the Nenegate scandal, when [former] finance minister, Nhlanhla Nene, was removed from his post and replaced with a man viewed as a political appointee."