A five rand coin. Picture: REUTERS
A five rand coin. Picture: REUTERS

The rand recovered from another 2019 low on Tuesday afternoon, as optimism grew that major global economies were gearing up to respond to flagging growth with additional government spending.

Concerns over a slowing global economy pushed the rand to R15.499/$ on Monday evening, an 11-month low, but the local currency recovered on Tuesday. Earlier, German policy makers confirmed that they were willing to increase fiscal spending in response to an economic slowdown.

Risk assets had also been boosted briefly on Monday by speculation that the US was prepared to cut payroll taxes, although the White House had subsequently denied this.

Although that market rally had fizzled, “what cannot be denied is the latest strong suggestion by US President Donald Trump that the Fed should cut interest rates by at least 100 basis points further — effectively halving the interest rate since its recent peak target range of 2.25% to 2.5%”, Rand Merchant Bank analyst Siobhan Redford said in a note.

Markets remained at risk of further trade-war escalations, and the rand should remain at the mercy of market news and changes in sentiment. At 2.40pm the rand had gained 0.78% to R15.3487/$, 0.74% to R17.0108/€ and 0.97% to R18.5784/£. The euro was flat at $1.1082.

The rand has depreciated 6.7% against the dollar so far in August, and is the second-worst performing currency tracked by Bloomberg on a 30-day basis. It has only been eclipsed by the Argentinian peso, which has been battered by expectations that pro-austerity politicians are facing defeat in upcoming polls.

Although markets have been boosted recently by stimulus hopes, BlackRock, the world's largest asset manager, has warned that space for policy makers is constrained by more than a decade of monetary stimulus that has driven interest rates in many developed markets towards zero.

In the next economic downturn, policy makers would need to carefully co-ordinate fiscal and monetary stimulus, a difficult task as these lines were becoming blurred amid a rise of populist political movements. This risked a slide into uncontrolled spending, said BlackRock economists in a note. “That highlights the main drawback of helicopter money: how to get the inflation genie back in the bottle once it has been released.”

gernetzkyk@businesslive.co.za