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South Africa: Rand on the Ropes

The sharp weakening of the rand over the last few weeks, is hardly surprising given the accompanying doubts over government policy credibility following the extensive cabinet reshuffle on March 30 and rapid subsequent downgrades to sub-investment status of its debt by S&P and Fitch.

The intensifying political intrigue and uncertainty are likely to weigh heavily on already tepid near-term growth prospects (largely via a pullback in business investment) and the rand at least until some of the fog is lifted by the ANC leadership vote in December. Until the current pace of sharp decline is set to continue, possibly towards 14.30/14.40 per US dollar by the end of the year from the current 13.43. On the assumption that policy uncertainty eases after a new ANC leader is installed we are expecting a shallower pace of softening to 14.50 by mid-2018.

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