South African rand likely to face further depreciation pressures over coming months amid global economic risks, says Commerzbank

The South African rand is expected to face further depreciation pressure in the coming months amid global and domestic economic risks, according to the latest research report from Commerzbank.

As generally expected, the overall inflation rate at year-end fell significantly from 5.2 percent to 4.5 percent. This puts it back in the middle of the central bank's (SARB) target corridor of 3-6 percent.

The main reason for this was the significant decline in oil prices in the fourth quarter of 2018, which was reflected above all in lower transport costs. This more than offset the rise in prices for many services. Moreover, food prices did not rise any further in December.

As mentioned earlier, the SARB had already significantly lowered its inflation forecast for 2019 and its interest rate outlook at its January meeting. At the same time, it continues to see the risks to inflation on the upside, the report added.

Meanwhile, Governor Kganyago reacted hawkishly to the new data. He said in an interview that the SARB would like to see inflation and inflation expectations moving closer to the midpoint of the target range because this gives greater flexibility in the event of price shocks. The rand benefited from this temporarily.