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GBP/ZAR Exchange Rate Subdued on BoE Rate Decision, is a 2020 Rate Cut Likely?

GBP/ZAR Exchange Rate Muted as BoE Remains Split on Interest Rates

The Pound South African Rand (GBP/ZAR) exchange rate is trading sideways this afternoon as markets react to the Bank of England’s (BoE) final policy decision of 2019.

At the time of writing the GBP/ZAR exchange rate is currently trading at around ZAR18.6381, virtually unchanged from the morning’s opening rate.

Pound (GBP) Weaker as BoE Indicates Possible Rate Cut in 2020

The Pound (GBP) is struggling to find momentum this afternoon in the wake of the Bank of England’s latest policy meeting.

As was widely expected the BoE voted to leave interest rates on hold at 0.75% in its final policy meeting of the year.

However as in November the vote was split, with two policymakers, Jonathan Haskel and Michael Saunders voting for an immediate cut to 0.5%.

It appears that the BoE is mostly content to remains in ‘wait-and-see’ mode, on hopes that greater certainty on global trade and domestic politics will hope to bolster growth in 2020.

Despite this some analysts forecast there remains a strong chance that the bank will implement a rate cut in the next six months.

Dean Turner, economist at UBS Wealth Management, comments:

‘After last week’s election result, the short-term clarity we have on Brexit could give a lift to economic sentiment.

‘Overall, though, as attention turns to the December 2020 end of transition deadline, the mood will likely remain subdued and growth weak. We expect that the committee will move further towards a rate cut in 2020 and a quarter point easing in May.’

South African Rand (ZAR) Strengthens Following Fitch’s Rate Decision  

Meanwhile, the South African Rand (ZAR) is trading close to multi-month highs against most of its peers today after ratings agency Fitch chose to leave South Africa’s credit rate unchanged following its latest review.

While Fitch already rates South Africa’s credit rating below ‘junk’ status, some analysts had feared that it could push it further into sub-investment grade.

The agency left South Africa’s rating at BB+ said its rating decision was based on the country’s low growth potential as well as the government’s substantial debt pile, which is expected to rise even further.

While ZAR investors were relieved by the decision Fitch made it clear its outlook for South Africa is negative and a future rating’s downgrade remains on the table unless the country begins to tackle its debt problem.