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South Africa FX 03 March 2021

FX Monthly Chart Book

Shireen Darmalingam

  • The rand responded positively to a financial market-friendly budget and is now broadly in line with the fair value estimate of our econometric model premised on the prevailing domestic and global fundamentals.
  • The ZAR is still supported by elevated terms of trade, though this support is expected to weaken somewhat in 2H21. As such, we see modest depreciation in the currency this year. The depreciation, however, is unlikely to be material and will thus unlikely become inflationary.
  • We see the rand ending the year at R15,00/$ and averaging R14,97/$.
  • The relatively resilient rand and weak demand will aid in keeping inflation contained despite the pressure from higher food and energy inflation. Headline inflation is expected to average 3,9% in 2021 and 3,8% in 2022.
  • We do not see further interest rate cuts at this stage, contrary to money market expectations. We expect a delayed rate hiking cycle; the first hikes are only expected in 2022.

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