RBC Capital Markets: South African rand likely appreciate in next 12-18 months
A decline in the perceived South Africa's output gap is keeping breakeven inflation high and steepening the term structure. The 2Y rate 3Y forward stands at 7.5%, against 6.5% for the 2Y rate and 4.4% for headlineinflati…
A decline in the perceived South Africa's output gap is keeping breakeven inflation high and steepening the term structure. The 2Y rate 3Y forward stands at 7.5%, against 6.5% for the 2Y rate and 4.4% for headlineinflation.
Following a bottom at 0.6% in April 2013, the 2023 inflation linked bond real yield now stands at 1.75%.Breakeven inflation at that part of the curve now stands at 5.6%, closer to the top end of the 3-6% inflation target range. "We believe the rand will likely appreciate to below 10.50 over the next 12-18 months. This appreciation would be the result of an increase in ex-post real interest rates and an improvement in the current account balance", said RBC Capital Markets in a report on Friday. The main risk to this outlook is insufficient investment in the energy sector and resulting power outages, added RBC Capital Markets.
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