The SA Daily
01 August 2019
Rand slips in wake of US cut
Shireen Darmalingam
- The US FOMC cut the Fed funds rate by 25 bps yesterday, as expected, for the first time in a decade. Fed Chair Jerome Powell however tamped down expectations of a series of future rate cuts. He noted though that the central bank would be able to sustain the record long expansion with a modest easing cycle, saying that the Fed was “thinking of it as essentially in the nature of a mid-cycle adjustment to policy”. US President Trump criticised the Fed’s stance and tweeted that “Powell let us down”.
- The dollar gained ground after the cut but the rand did not respond well to this now more hawkish US stance. Domestically, the rand also faces the risk of a downgrade by Moody’s which noted just last week that the most recent government bailout of Eskom last week is credit-negative.
- Fitch ratings agency too now has expressed concerns that the SA’s fiscal condition has deteriorated further due to limp GDP growth; Fitch has now downwardly revised the outlook from stable to negative. Clearly, constructive policy reforms are urgently required to ease the pressure on SA ratings and growth.
- Eskom will still require further government support and, as policy interventions to improve the economic growth and fiscal prognoses remain out of reach, we see the rand at R14.00/$ at end-2019 and end-2020.
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