Surprise SARB Rate Cut Buoys Pound South African Rand (GBP/ZAR) Exchange Rate

April 15, 2020 - Written by John Cameron

STORY LINK Surprise SARB Rate Cut Buoys Pound South African Rand (GBP/ZAR) Exchange Rate

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Jumps as SARB Slash Rates

The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied by 0.8% this afternoon, leaving the pairing trading at around R23.2864.

The South African Rand suffered steep losses against the Pound today after a surprise rate cut from the country’s central bank.

The South African Reserve Bank (SARB) slashed interest rates by 100 basis points on Tuesday to help cushion the country’s economy from the economic effects of the coronavirus pandemic.

The news of the possibility of major economies re-opening left investors cautiously optimistic, as the cases in both Europe and the United States were peaking.

However, the warning from the International Monetary Fund (IMF) that the global economy was set for its steepest downturn since the Great Depression dampened risk appetite and sent ZAR lower.

In its report, the IMF stated:

‘It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.’

Added to this, Commerzbank analyst, Antje Praefcke noted:

‘It is not (yet) clear whether economies will recover quickly or whether it might take longer than assumed so that we are more likely to see an L-shaped recovery as standard.’

Sterling (GBP) Rallies despite IMF Forecast

Sterling was able to rise against the risk-sensitive South African Rand on Wednesday, but slumped against both the US Dollar (USD) and Euro (EUR) as traders flock to safety.

Investors realised today that it was too early to be optimistic about the coronavirus pandemic following the global economic forecast from the IMF.

Commenting on this, Thu Lan Nguyen, senior FX strategist at Commerzbank noted:

‘The Dollar is stronger on a very broad basis and that indicates that markets remain quite nervous. The IMF served as a reminder that it could be a lot worse than what we’ve seen in recent decades and I think the market is still grappling with the extent of this crisis economically. It wasn’t sustainable, this moderate cautious optimism that we’ve seen recently [...] I think the market’s coming to the realisation that it’s just too early for a sustainable rally.’

Added to this, GBP remained under pressure after the UK’s budget forecasters said the country’s economy could shrink by as much as 13% due to the coronavirus pandemic.

Public borrowing in Britain is also expected to jump to a post-World War Two high.

However, the slump in risk appetite allowed the Pound to make gains against the South African Rand.

Pound South African Rand Outlook: Risk Appetite and Coronavirus in Focus

Looking ahead, the South African Rand (ZAR) is likely to extend today’s losses against the Pound (GBP) as traders continue to focus on the coronavirus pandemic.

If risk appetite continues to fall as traders continue to worry about the economic fallout from the virus, the risk-sensitive Rand is likely to suffer further losses.

However, Sterling gains could be limited following a speech from the Bank of England’s (BoE) Silvana Tenreyro.

If Tenreyro’s tone is overly dovish and focuses on the economic impact of the coronavirus pandemic, the Pound South African Rand (GBP/ZAR) exchange rate will remain flat.

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TAGS: Pound Rand Forecasts