Citi closed its bullish rand trade after the SARB's surprise rate hold, losing $468,334. Governor Kganyago called the economic analysis a "dismal science."
Alpha Score of 56 reflects moderate overall profile with strong momentum, weak value, moderate quality, moderate sentiment.
Citigroup Inc. shut its bullish wager on the South African rand against the euro hours after deciding the currency would stay "fragile" following the central bank's surprise decision to keep interest rates unchanged.
"We are now exiting the short EUR/ZAR position, recently opened at spot reference 18.79," the investment bank's global head of emerging markets strategy Luis Costa said. The trade generated a total loss of 2.13%, or about $468,334, on a $22 million notional position, which was closed at 19.19, he said.
The "underlying assumption in our bullish rand view has changed significantly over the past 24 hours," Costa said. "The South African Reserve Bank contradicted its previous position by not hiking rates this week."
The rand has depreciated almost 3% against the euro to 19.19 since the central bank's six-member monetary policy committee in a split decision unexpectedly kept the policy rate at 7% on Thursday and revised its inflation forecasts lower. Seventeen of the 20 economists surveyed by Bloomberg had expected a quarter-point rate increase after inflation accelerated more than expected to 5% in June, moving further away from the central bank's 3% target, while the resumption of the US-Iran war has driven up fuel and fertilizer prices.
Asked his views on the disconnect between what analysts expected and what the central bank delivered, Governor Lesetja Kganyago said "it is a dismal science that we are playing." Adding that "in this uncertain environment, you can forgive people for missing what they had actually expected," he said. "It might just turn down the line that we were wrong."
Citigroup expects the rand to remain "fragile" under current conditions, citing rising energy costs as a key risk. "As much as we remain constructive on some replenishment of terms of trade value in the medium term – iron ore, gold, platinum and some easing in petrol prices over the next quarters – we believe it is tough to imagine that the rand can indeed absorb the short-term shocks emerging-market assets are seeing now."
The central bank's surprise decision could also impact South African government bonds, Costa warned. "Positions have been rather sticky up until now, under the assumption the SARB would be able to keep investor confidence intact."
The C stock page shows an Alpha Score of 53 out of 100, carrying a Mixed label for the Financials sector.
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