The rand plunged to an alarming R19.01 against the dollar on Thursday morning. However, economists already started to sit up on Wednesday when the rand weakened by 23c to R18.89.
The rand last performed so poorly during the strict complete isolation in April 2020.
Prof. Waldo Krugell, professor of economics at the North-West University, says the sudden drop of the rand was surprising as no important announcements had been made over the past few days.
This while a year ago the rand was still trading at R15.30 against the dollar.
André Cilliers, currency strategist at TreasuryONE, says that there is currently an advance of the US dollar against most currencies. However, the rand is performing worse than its peers in emerging markets and has weakened 17% against the dollar in the past year.
Although investors are beginning to regain their confidence in emerging markets, their confidence in South Africa is simply on the wane. So there appear to be several factors that resulted in the tumble.
Cilliers blames political decision-makers’ inability to make growth happen.
“The increased phases of load shedding and the effects of load shedding on companies’ ability to do business have caused South Africa’s expected economic growth to tend towards nothing or even negative growth.”
He also blames Transnet’s inability to provide a proper service and its impact on exports of mining products in particular.
Other factors that may have played a role in the tumbling of the rand include the reduction and recovery of taxes due to lower company profits and the fiscus, the large-scale sale of government bonds by foreigners and the change to regulation 28.
Krugell also says there is no single reason for the tumbling of the rand.
He is more concerned about what the weak rand says about how the economy is really doing – and what it will mean for inflation figures.
A much weaker rand is bad for inflation, Krugell points out.
Krugell is also concerned about the effect the weak rand will have on the import of goods.
“International oil prices have only been slightly lower in the last few weeks. If the rand is so weak, the fuel price will rise again – which again brings its own problems.
“A weaker rand could in the end mean that our inflation does not decrease along with that of the rest of the world.”
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