Dovish MPC outcome sees renewed weakness in the rand

Renewed rand weakness has bode well for rand hedge industrial counters which have rallied post the news to push the TOP40 index higher. 

The conclusion of the South African Reserve Bank’s (SARB) monetary policy meeting saw rates left unchanged, which was in line with consensus estimates, as inflation moderates (with rand strength) and the outlook for economic growth improves.

August’s Consumer Price Index data (CPI), year on year, showed inflation to have retreated back within the reserve bank’s 3% to 6% targeted band at 5.9%. Domestic inflation is now expected to peak at 6.7% in the fourth quarter revised lower from the previous SARB estimate at 7.1%.

After a much improved second quarter Gross Domestic Product data (GDP) print, the reserve Bank now expects economic growth for 2016 at 0.4% (previous guidance 0%).

The rand found renewed weakness transpire after the central bank suggested that if the current economic conditions improve as predicted that we may be nearing the end of the monetary tightening cycle.

The below USD/ZAR hourly chart from the Monetary Policy Committee (MPC) meeting shows the weakness which has ensued in our domestic currency post the meeting in lieu of the possible ending of the monetary tightening cycle. 

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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