<\/p>\n
Citigroup Inc closed its bullish position on the South African rand against the euro hours after concluding the currency would remain \u201cfragile\u201d following the South African Reserve Bank\u2019s (Sarb) surprise decision on Thursday to keep interest rates unchanged.<\/p>\n
\u201cWe are now exiting the short EUR\/ZAR position, recently opened at spot reference 18.79,\u201d the investment bank\u2019s global head of emerging markets strategy Luis Costa said.<\/p>\n
Read: Sarb holds rates steady at 7%\u00a0<\/p>\n
The trade generated a total loss of 2.13%, or about $468 334, on a $22 million notional position, which was closed at 19.19, he said.<\/p>\n
The \u201cunderlying assumption in our bullish rand view has changed significantly over the past 24 hours,\u201d Costa said. \u201cThe South African Reserve Bank contradicted its previous position by not hiking rates this week.\u201d<\/p>\n
The rand has depreciated almost 3% against the euro to 19.19 since the central bank\u2019s six-member monetary policy committee in a split decision unexpectedly kept the policy rate at 7% on Thursday and revised its inflation forecasts lower.<\/p>\n
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Seventeen of the 20 economists surveyed by Bloomberg had expected a quarter-point rate increase after inflation accelerated more than expected to\u00a05% in June, moving further away from the central bank\u2019s 3% target, while the resumption of the US-Iran war has driven up fuel and fertiliser prices.<\/p>\n
Read:
Rand becomes world\u2019s worst performer of the day after Sarb holds rates
MPC faces finely balanced rate decision on Thursday
Inflation resurgence puts another rate hike on the cards<\/p>\n
Asked his views on the disconnect between what analysts expected and what the central bank delivered, Sarb governor Lesetja Kganyago said \u201cit is a dismal science that we are playing.\u201d Adding that \u201cin this uncertain environment, you can forgive people for missing what they had actually expected,\u201d he said.<\/p>\n
\u201cIt might just turn down the line that we were wrong,\u201d said Kganyago.<\/p>\n
Citigroup expects the rand to remain \u201cfragile\u201d under current conditions, citing rising energy costs as a key risk.<\/p>\n
\u201cAs much as we remain constructive on some replenishment of terms of trade value in the medium term \u2014 iron ore, gold, platinum and some easing in petrol prices over the next quarters \u2014 we believe it is tough to imagine that the rand can indeed absorb the short-term shocks emerging-market assets are seeing now.\u201d<\/p>\n
SA bonds\u00a0\u00a0<\/p>\n
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The central bank\u2019s surprise decision could also impact South African government bonds, Costa warned.<\/p>\n
\u201cPositions have been rather sticky up until now, under the assumption the Sarb would be able to keep investor confidence intact.\u201d<\/p>\n
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#Citi #drops #rand #bet #Moneyweb<\/p>\n","protected":false},"excerpt":{"rendered":"
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