Fed Move Probably Already Priced in by Rand Investors, Nene Says

  • Finance Minister Nene sees further rand losses unlikely
  • South Africa stands to gain from weak rand via currency boost

South Africa’s Finance Minister Nhlanhla Nene said the U.S. Federal Reserve’s expected decision to start raising interest rates was unlikely to result in further losses to the rand, the year’s worst performing currency among peers in Europe, the Middle East and Africa.

Speaking in a Bloomberg Television interview in the Turkish coastal resort of Antalya, where he is part of the South African delegation at a Group of 20 nations summit, Nene said that while “it’s difficult to predict” the currency’s future moves, investors have probably already “priced in” the Fed’s rate increase. The rand fell to a record low on Friday on speculation that the Fed will raise interest rates in December.

The rand’s plunge has raised bets that the South African Reserve Bank might tighten policy this year to prop up the currency. Meantime, low global demand for commodities as well as falling metals prices are weighing on the nation’s economy, which Nene expects to grow 1.5 percent this year and 1.7 percent next, down from previous forecasts of 2 percent and 2.4 percent. The currency’s slump may not be a source of concern should policy makers use the weaker rand to boost exports, Nene said.

“If we actually take advantage of this, it would actually work in our favor,” Nene said of the currency’s depreciation. “And it’s for that reason that we’re putting a particular emphasis on boosting our exports and creating space and to be able to take advantage of the situation for our economy.”

The rand fell 1.55 percent this week to 14.3862 per dollar on Friday, extending losses this year to 19.6 percent to become the worst performing emerging-market currency tracked by Bloomberg in Europe, the Middle East and Africa.

Nene said the magnitude of the Fed’s first rate increase is unlikely to be higher than 25 basis points, an amount already reflected in South African asset prices. There is no currency level that would automatically trigger an intervention by the central bank, which is “monitoring the situation,” Nene said.

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