On the back of a trio of supportive statements, the Pound has recently risen by 1.9% against the South African Rand.
The coming months could see the Pound to Rand rate rise further, depending on if the Bank of England (BoE) commits to higher interest rates.
Further Pound Gains ahead if BoE Sticks to Rate Hike Rhetoric
For context, September 14th brought Bank of England (BoE) minutes that backed higher interest rates, assuming that UK inflation remained high. This sentiment was later echoed by BoE Governor Mark Carney and policymaker Gertjan Vlieghe.
Taking this into account, any further signs that the BoE could raise interest rates may boost the Pound. The ultimate end-point for this could be an actual BoE interest rate hike in November.
That said, some economists are still holding off and believe that the central bank will not implement higher interest rates until 2018 at the earliest.
Among these has been veteran forecaster Howard Archer, Chief Economic Advisor of the EY Item Club. In between the minutes and Carney’s remarks, Archer said;
‘The MPC minutes come across as more hawkish. In particular, the MPC warned that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months”. With reduced confidence, we still lean towards the view that the Bank of England will hold off from raising interest rates until late-2018.
This is based on our belief that the economy is likely to remain stuck in low gear over the coming months, inflation is likely to ease back steadily after peaking around 3% in late-2017 and Brexit uncertainties will remain high. But it is undeniable that an interest rate move before the end of next year has recently become a closer call’.
In the event that the BoE does commit to a path of higher interest rates then the Pound could rally strongly against the Rand.
South African Rand could Slide if Consumers Stay Cautious
Future Rand movement could be in a downwards direction overall, given that low consumer spending is an ongoing issue.
According to Barclays Africa’s Rod Salmon, consumer spending contributes to 60% of national GDP, but;
‘If we have low spending, we’re going to have low growth. We need a manufacturing base to grow this economy and help it to transform from a developing economy to a developed economy’.
If retailers are unable to draw in customers then the Rand could fall further on disappointing retail activity data.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Rand (GBP ZAR) exchange rate was trading at 17.8530 and the Rand to Pound (ZAR GBP) exchange rate was trading at 0.0559.
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