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Continued tightening of global financial conditions, changing investor sentiment towards emerging markets, escalating trade conflicts, geopolitical developments and idiosyncratic risks.
According to Daniel Mminele, Deputy Governor of the South African Reserve Bank (SARB), these risks remain the main risks for the rand. Speaking at the Bloomberg FX'18 conference on Wednesday, November 28th.
Because of these risk factors, Mminele said it was likely that the rand, as well as other emerging market currencies, would remain volatile in 2019.
"Due to recent volatility, exchange rate forecasts remain largely dispersed," he said.
"Between this quarter and the third quarter of 2019, the exchange rate of the rand should be 14.50 rand in US dollar – This is in line with Bloomberg's median forecast.
"However, the difference between the most optimistic and the most pessimistic survey participants regarding the expected exchange rate for the first quarter of 2019 is almost 3.00 RU.
Mminele added that such a large dispersion around the median forecast on such a short horizon is representative of the uncertainty that is now an integral part of South Africa's life.
"This uncertainty adds considerable complexity to the conduct of monetary policy, the most recent outcome of our monetary policy meeting and the finely balanced decision is a good example," he said.
Since trade is very volatile, Mminele said the Monetary Policy Committee would remain flexible in its responses.
"We will continue to allow the exchange rate to absorb the initial shocks and focus our policy actions on second-round effects on prices," he said.
"It is important that political decisions are not influenced by short-term market developments in both directions."
Read: What does oil at $ 50 a barrel mean for South Africa and the global economy?
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