Citi Drops Rand Bet After South Africa’s Surprise Rate Hold

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Or sign-in if you have an account.Lesetja Kganyago Photo by Waldo Swiegers /Photographer: Waldo Swiegers/Blo(Bloomberg) — Citigroup Inc. closed its bullish position on the South African rand against the euro hours after concluding the currency would remain “fragile” following the central bank’s surprise decision to keep interest rates unchanged.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Account“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.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe 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.”Sign up here for the daily Next Africa newsletter and subscribe to the Next Africa podcast on Apple, Spotify or anywhere you listen.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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