South Africa's rand will be more stable this year and not repeat the steep losses it suffered in 2011 as optimistic signals about the state of the global economy keep the currency on a firmer path, a Reuters poll predicted on Wednesday.
The poll of 30 analysts, taken this week, showed the rand slipping to 7.78 against the dollar in three months time but strengthening over two percent from there to 7.61 in 12 months.
It was trading at 7.65 earlier on Wednesday. The latest survey is also more bullish than the poll last month, which had the rand at 8.0 per dollar in one month, 8.1 in three and 7.7 in 12 months.
That is a decidedly calmer outlook, compared with how it traded last year. The rand fell more than 20 percent against the dollar in 2011, hitting 2-1/2 year lows of 8.61 in November, as the debt crisis in the euro zone deepened.
"We believe that underlying drivers exist for a stronger rand in the coming months supported by the wall of cash from developed market QE (and quasi QE), subsequent flows into commodities and emerging market assets, and decent carry," said Roderick Ngotho, CEEMEA forex strategist at RBS. The global outlook has improved since the start of the year, certainly compared with the prevailing gloom at the end of 2011, and stock markets have rallied almost uninterruptedly for most of the past two months.
That is despite uncertainty over whether euro zone leaders will manage to contain the risk to the financial system of a possible disorderly Greek sovereign debt default.
Currency traders are likely to use some of the hundreds of billions of euros of cheap 3-year money the European Central Bank injected into the banking system in December and February to buy into riskier, higher yielding assets like the rand. "The liquidity provided by the ECB, due to prevailing crisis conditions, should also drive demand for fixed-income products through downward pressure on real interest rates," said Annabel Bishop from Investec. With interest rates still sitting at 5.5 percent after 650 basis points of cuts between 2008 and 2010 to avoid a 2009 recession, investors are still looking to emerging markets for a better yield compared to developed markets which are at almost zero rates.
Interest rates are seen unchanged this year according to the latest Reuters Econometer survey while inflation is expected to average the year at 6.15 percent, any moderation to prices would improve interest rate differentials.
The National Treasury cut its forecast for Africa's biggest economy to 2.7 percent for this year from an earlier projection of 3.4 percent, owing to a slowdown in Europe and the United States. The economy grew 3.1 percent in last year and 2.9 percent in 2010.
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