Extended ZAR weakness likely over coming quarters

The SARB is not expected to defend the exchange rate mainly because of the country's relatively low levels of FX reserves. The fact that there has been a relatively limited FX pass-through into the inflation data also suggests that monetary policy will remain accommodative and continued depreciation tolerated. 

"South Africa's onerous external funding requirements, sluggish economic recovery, low labour productivity growth and falling real rates will result in extended ZAR weakness over the coming quarters", says Barclays. 

Importer demand normally intensifies at this time of year, which implies that seasonal trends favour a weaker ZAR over the coming months. Capital flowsare waning, market positioning is not extremely short ZAR and the ZAR is vulnerable to further credit rating downgrade later in the year.