Deutsche Bank contrary to rand bears

Johannesburg - After posting one of the strongest rallies in emerging

markets this year, South

Africa’s rand is headed for a 12 percent

drop in 2017, according to analysts polled by Bloomberg. Deutsche Bank says

they’ve got it wrong.

The

fourth-biggest foreign-exchange trader is shrugging off political uncertainty

that’s slowed the currency’s advance in 2016, predicting a gain of about 7

percent to 12.50 per dollar next year. Here’s why:

Inflation outlook

Inflation

is slowing. The South African Reserve Bank sees the rise in consumer prices

averaging 5.8 percent in 2017, down from a seven year high of 7 percent in

February. That means the yield on South African assets will remain attractive,

even as US

interest rates rise, Deutsche Bank economist Danelee Masia said in a report December

5.

Economy rebounding

South Africa’s economy barely avoided a

recession in 2016, but things are looking up. Growth should accelerate to 1.4

percent in 2017, more than the central bank’s estimate of 1.2 percent,

as companies rebuild profit margins through a combination of cost

efficiencies, job cuts and wage restraint, according to Deutsche Bank. A

rebound in agriculture following the worst drought in more than 100 years may

also fuel growth.

Read also:  SA's economy to pick up a bit in 2017

Current account gap

The rand’s

Achilles’ heel, the current-account deficit, is narrowing as subdued demand

constrains imports. The shortfall shrank to 3.1 percent of gross domestic product

in the second quarter, from 5.3 percent the previous three months. Deutsche

Bank predicts it will decline to the smallest margin in six years in 2017,

making the rand less vulnerable to capital outflows as the US lifts interest

rates. Third-quarter current-account data is due Friday.

The rand

declined 1.4 percent on Thursday to 13.6604 per dollar. Rand Merchant Bank, the

second most-accurate dollar forecaster in the third quarter according to

Bloomberg rankings, predicts the currency will strengthen to 13 by the end of

2017. The top rand forecaster, Swissquote Bank, sees the currency at 14.70,

while third-placed ABN Amro Bank sees a drop to 15.25.

BLOOMBERG