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The SA Daily 21 June 2019

SoNA matches market expectations

Shireen Darmalingam

  • Pre-election uncertainty kept the rand weak and vulnerable in H1:19. Though the favourable SA elections outcome in May assisted the rand, it has since weakened significantly due to the breadth and depth of SA’s requisite policy reforms. Global growth concerns and the US-China trade war have also kept EM currencies generally under pressure.
  • However, President Ramaphosa’s second State of the Nation Address (SoNA) last night was encouraging: credible policy reform is clearly in progress to drive future GDP growth. He emphasized the “growth and renewal mandate”, saying that “it is time for implementation even though there will be difficult choices and trade-offs”.
  • The president reassured markets by addressing plans to deal with SA’s SOEs, providing timelines of reform implementation processes; clearly, economic policy and infrastructure plans are in place now, which will help smooth market sentiment.
  • The rand had already gained yesterday after the Fed said that easing was on the cards. And, after the SoNA, the rand’s total gain was 1.2%.
  • The rand has now gained over 4.5% from R15.17/$ on 7 June. We expect the rand to firm further in the coming months. We forecast it at R13.80/$ by year-end 2019 on the expected constructive economic and policy reforms.

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