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Rand recovery seen short-lived, importers worried

Reuters poll expects Sarb to raise interest rates towards year-end.

JOHANNESBURG – South Africa’s rand recovered slightly from steep losses to the dollar on Thursday but local importers worried the rebound was not enough to prevent them from paying more as they renewed their contracts.

By 1612 GMT the rand was up 0.16 percent to 12.2700 to the dollar. Against a firmer euro, the currency of a major import destination for Africa’s most advanced economy, the rand had weakened by over half a percent to 13.0311.

“We are likely to see strain being taken if the rand doesn’t regain some ground in the next few weeks,” said Adam Orlin, chief executive of import specialists Blue Strata.

“There are a lot of forward import contracts in the pipeline. Once those contracts run out, we are quite likely to see this negative effect trickle down to the consumer,” Orlin said, adding that new contracts were likely to be at a higher premium due the rand’s fall to 13-year lows this week.

South Africa’s trade deficit widened to more than 24.22 billion rand in January, with imports climbing 13.3 percent month-on-month while exports slumped.

The wide deficit magnifies the economy’s battle to raise productivity as it faces sluggish growth, high unemployment and the worst electricity shortages since 2008.

With emerging markets remaining under pressure from increasing bets that the U.S. Federal Reserve will hike rates by June, drawing away investments from riskier assets, there are strong chances of further losses for the rand.

A Reuters poll of 32 economist found its central bank is expected to raise interest rates towards year-end, taking cue from the U.S, a weak rand and rising oil prices.

Government bonds were slightly firmer on the day with yields edging lower, the bench market paper due in 2026 shedding 2.5 basis points to 7.875 percent.

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