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Categorized | Currencies

Rand gains from calmer EM waters

Posted on March 26, 2014

    The South African Reserve Bank on Thursday will deliver its latest monetary policy decision.

    Analysts’ consensus is for the SARB to leave rates alone after unexpectedly hiking them by 50 basis points to 5.5 per cent in January, ostensibly to support the rand.

    Still, Capital Economics describes the outcome as a close call.

    “A renewed slump in the currency before the meeting could prompt another rate hike but, as things stand, we think the SARB will refrain from raising rates this time around,” says the London-based research boutique.

    After being caught up in the emerging market fallout at the start of the year, with domestic industrial relations strife adding to the tension, the rand seems to have steadied for the time being, gaining 5 per cent or so since the SARB’s January tightening.

    Chart: South African rand against the dollar

    And it is worth noting that EM currencies generally have not displayed the kind of sensitivity many would have expected to last week’s shift in short-term US rate expectations following the “Yellen wobble”.

    The rand’s one-month implied volatility is near 13, below the 12-month average of 14.3 and well down from the spike above 18 seen at the end of January.

    Calmer times in EM forex?