The Pound Sterling to South African Rand (GBP/ZAR) exchange rate advanced strongly on Thursday after Bank of England Governor Mark Carney said that interest rates could rise sooner than expected despite the UK facing weak inflation.
Pound Exchange Rate Strengthens
In the inflation report, governor Carney warned that interest rates might rise earlier than economists previously expect, despite the Bank of England predicting that inflation will turn negative for the first time in more than 50 years. Carney added that a negative inflation rate would not prove to be dangerous for the economy and would not lead to a deflationary spiral.
‘Inflation pressures could be greater if lower oil prices were to provide greater stimulus to global and domestic growth or if slack in the economy were to be absorbed more quickly than in the central projection. If these risks materialise, it would be appropriate for the Bank rate to increase more quickly than embodied in current market yields but the likelihood is that those increases would still be more gradual and limited than in previous tightening cycles,’ Carney said in a letter to Chancellor George Osborne.
During the inflation report and following press conference, the Pound surged strongly against all of its most traded peers. Against the Euro, it advanced back above the 1.35 level to 7-year high and made gains against the US Dollar.
South African Data Weighs on Rand Exchange Rate
The South African Rand meanwhile weakened after data released by Statistics South Africa showed that mining production in December fell more than forecast. On a month on month basis production rose by 0.9% but on an annual basis production tumbled by -2%, a figure that was far worse than forecasts for an increase of 0.2%.
Also weakening the currency are ongoing concerns over the nation’s energy supply. President Jacob Zuma is set to deliver an announcement on plans to build nuclear power stations as the government seeks to tackle the energy crisis that has impacted heavily upon the economy
‘We know that nuclear is part of the governments energy mix and there has been a lot of talk about a nuclear power station to be built in the Eastern Cape. Without energy, this economy will not grow. The address will be all about the economy, the economy, the economy,’ said Stone Sizani, chief whip for the African National Congress (ANC).
The Rand could come under further pressure if upcoming data releases out of the USA come in better than forecast.
