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The Rand continues to fall

The Rand continues to fall

Date: 2013-06-13
The rand sank to u16 to the British pound on Tuesday morning, having hit new lows on Monday afternoon when it reached R10.24 to the US dollar, which puts it among the worst-performing currencies at the moment.

The South African currency has dropped by over 10 percent against major currencies this month. Only on Monday, it lost nearly 20 cents against the dollar.

Expect inflation, social tension, weak economic growth, high unemployment and poverty after the collapse of the rand. I think the currency will soon regain some lost ground but much damage has been done already and the consequences will be painful, warned Dawie Roodt, the Chief Economist of the Efficient Group, financial services company.

He acknowledged that a weak currency had some advantages such as creating a better position for exporters to compete internationally, however he did not doubt that: The disadvantages of a weaker currency are much more harmful than the possible benefits.

"The most obvious disadvantage is that we are all poorer because of the rand's weakness."

He stressed that it will be the poor and the unemployed who will be hit the hardest: "Their wage increases will be last in the chain of price increases that will wash through the economy. In the case of the unemployed, [who] have no income, yet their cost of living will go up like that of everybody else."

South Africa's bond market has already weakened sharply on Monday.

The general state of the economy is not good at the moment. We're in a bad space. Low growth and continued labour unrest are putting pressure on the rand? Iquad currency dealer, Tony van Dyk, explained the reasons behind the rand's constant fall in recent weeks.

Arthur Kamp, investment economist at Sanlam Investment Management, also did not believe there was "a strong link", between Mandela's health and the currency's decline. Kamp blamed the rand's weakness on the persistent current account deficit and a low portfolio of investment inflows.

Standard Bank rand strategist, Bruce Donald, summed up that the rand's fall was due to "a cocktail of adverse global and domestic developments."

He pointed that Chinese industrial data released last weekend was weaker than hoped. According to Standard Bank's analysis the rand's relationship with emerging market currencies has been stronger during the past month than with other financial market variables.

"China has become an increasingly important export market for South Africa and also a key player in international commodity markets. For the rand to move from the back foot, where we are now, onto the front foot, we will need to see a turnaround in the underlying drivers of commodity prices," explained Mr Donald.

He added that South Africa had entered the wage negotiation season, known as the strike season, which increased fears about production disruptions in key export sectors.

There were also concerns about electricity outages as temperatures dropped. On Monday night, South Africa came dangerously close to a blackout after overwhelming demand for electricity squeezed the reserve margin to 0.2 per cent.