SARAH BULLEN, Cape Town | Tuesday 11.40am
THE rand crashed through the crucial R6,50 to the dollar level in early trade on Tuesday morning and is heading toward R6,55 as persistent negative sentiment continues to dog the currency.
Economists remain bemused as to the sudden drop from favour of the rand, pointing only to last week’s remarks by SA Reserve Bank Governor Tito Mboweni regarding inflation fears.
The rand’s slide against the dollar started on Friday when it lost some 10 cents to fall from R6,35 on Thursday evening to R6,46 by Friday afternoon. ING Barings chief economist Kristina Quattek said that, while volatility has been accentuated by thin volumes and weakness has been exaggerated by the dollar’s strength, the rand’s fall was precipitated by sentiment in South Africa’s financial markets turning bearish.
The positive sentiment following the ratings upgrade for South Africa by the message by the Reserve Bank on Friday that no more interest rate cuts are on the cards.
Quattek said that ING Barings has been expecting heightened exchange rate volatility in 2000 due to a weaker balance of payments position. Last week’s net foreign outflows from the equity and bond markets of R2,3-billion highlights once again South Africa’s vulnerability to volatile portfolio flows in a widening current-account deficit scenario, she said.
The rand’s fall does bring good news, however, for exporters, who were unable to register much volume growth in 1999, she siad. “It is only a shame that the rand has not depreciated much against the euro, as Europe still purchases about 30% of SA’s exports, while the US takes up only 10%.”