The rand expected to weather emerging markets storm

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JOHANNESBURG, June 7 (Reuters) – South Africa’s rand is
expected to weather the emerging markets dollar storm better
than its peers over the next 12 months due to attractive
interest rate returns, despite a weak economic start to 2018, a
Reuters poll found.

The rand is expected to recover to 12.50 per dollar
in 12 months from 12.76 currently, more than 2 percent firmer,
according to the median forecast of around 30 strategists in the
June 4-6 poll.

“Our real interest rates remain attractive and could lure
capital flows back, once the ‘risk-off’ sentiment subsides,”
said Elize Kruger at NKC African economists.

South Africa’s central bank kept its benchmark repo rate at
6.5 percent last month after cutting it at the previous meeting,
as it weighs up the risks to consumer price inflation against a
fragile economic recovery.

No interest rate changes are expected until at least the end
of next year, according to a separate poll last month.

Kruger reckons the rand’s fair value is around 12.35 per
dollar, suggesting the currency has potential to firm up.

The poll was largely taken before the rand hit a two-week
low against the dollar on Tuesday, in the wake of data showing
the economy suffered its worst quarterly contraction in nine
years during the first three months of 2018.

Despite a hesitant start to the year, the renewed investment
interest in the South African economy should lift economic
growth more meaningfully while good global growth also remains
supportive.

Analysts expect the dollar rally to have run its course and
to gradually weaken towards the end of the year, driven among
other factors by U.S. twin deficit developments that should
support the rand somewhat.

South Africa’s economy was expected to expand 1.8 percent
this year after expanding 1.3 percent in 2017, last month’s
Reuters poll found.

Still, business confidence fell for the fourth month in a
row in May, mainly due to a slide in trade activity and higher
consumer inflation following a hike in value-added tax.

(For other stories from the June Reuters global foreign
exchange poll:)
(Polling by Mumal Rathore and Sarmista Sen
Editing by Hugh Lawson)