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Pound to South African Rand Forecast: Will GBP/ZAR Exchange Rate Fall on Faster UK Inflation?

South African Rand Currency Forecast

The Pound to Rand (GBP/ZAR) exchange rate has bounced back today, rising by 0.9%.

This notable recovery follows speculation that South African President Cyril Ramaphosa could struggle to deliver policy changes.

Mr Ramaphosa took over as national leader from Jacob Zuma earlier this year, but the ruling ANC party could hinder his efforts.

Considering the difficulties that could blight Mr Ramaphosa’s leadership, political science lecturer Zakhele Ndlovu said:

‘Ramaphosa, as the President of the ANC, faces a huge battle in terms of uniting the party.

‘Right now it is deeply divided, particularly in provinces such as the North West and KwaZulu-Natal, where you have provincial chairpersons of the party who are more loyal to Jacob Zuma than they are to the ANC.’

(Last updated 17th May, 2018)

The Pound (GBP) has fallen further against the South African Rand (ZAR) today, declining by -1% in the pairing.

This continued deterioration comes after Bank of England (BoE) Deputy Governor Ben Broadbent’s criticism of the UK economy.

Mr Broadbent was criticised for his phrasing, but still concerned Pound traders by saying that the UK economy was ‘past its prime’.

The ‘productivity puzzle’ was mentioned; this is the fact that UK working hours are longer but output is less than other nations.

Mr Broadbent was unable to offer an immediate solution to the puzzle, which left GBP traders anxious.

(First published 16th May, 2018)

Rising UK Inflation could Trigger GBP/ZAR Exchange Rate Decline

The Pound (GBP) has fallen by -0.4% against the South African Rand (ZAR) today and further struggles could be on the horizon for the pairing.

Looking ahead, the Pound to Rand exchange rate (GBP/ZAR) could be affected by UK inflation rate data out next Wednesday.

The readings for April are forecast to show a faster pace of price growth for both the month-on-month and year-on-year readings, which could unsettle GBP traders.

The UK wage squeeze was only just eliminated in March, but if inflation rises and April’s wage data shows a slowdown then the squeeze could return.

Under such conditions, UK households can see real incomes fall because of the effects of higher everyday prices.

The Bank of England (BoE) has previously resisted raising UK interest rates in the face of higher inflation, even when the rate of price growth hit 3.1% in 2017.

As such, reports of higher UK inflation next week might weaken the Pound because they would suggest that UK economic stability is falling.

Will South African Rand to Pound (ZAR/GBP) Exchange Rate Rise on Inflation Acceleration?

The next event which could affect the South African Rand to Pound (ZAR/GBP) exchange rate will also be inflation rate stats released next Wednesday.

Current estimates are for core annual inflation levels to rise from 4.1% to 4.3%, while a much larger base annual advance is forecast from 3.8% to 5.1%.

The South African Reserve Bank (SARB) has an inflation target of between 3-6%. If annual inflation rises in line with or above forecasts, the Rand could firm.

As inflationary pressures increase for businesses and consumers, SARB policymakers may consider raising interest rates to encourage saving and lessen price pressures.

Forecasts for higher inflation are expected to be validated by recent financial policy changes, which have included raising VAT by 15%.

The SARB cut interest rates to their lowest level in two years in March, so signs that rates could rise again might support the Rand over the coming week.

Continued South African Economic Growth could Push ZAR/GBP Exchange Rate Higher

More broadly, the Rand (ZAR) has the potential to rise against the Pound (GBP) in the future if the South African economy grows in line with forecasts.

Goldman Sachs analysts believe that South Africa will grow by at least 2.4% this year, thanks mainly to the influence of new President Cyril Ramaphosa.

This growth estimate is above most other forecasts, so if the prediction is met or exceeded then the Rand could rally.

Highlighting the importance of Mr Ramaphosa in future national development, Capital Economics Africa Economist John Ashbourne has said:

‘We … maintain our above-consensus GDP growth forecast of 2% over 2018 as a whole.

‘Improved consumer and business confidence following the election of Cyril Ramaphosa also points to stronger growth over the coming quarters.’