LUCIA MUTIKANI, Johannesburg | Tuesday
THE rand fell to a new low of 8.20/dollar on Monday as investors took fright over speculation a bid for diamond giant De Beers, set to trigger large capital inflows, may fail.
Fears are mounting that Anglo American’s joint bid for De Beers, expected to result in capital inflows of nearly $3bn, could fall through after minority shareholders voiced opposition late last week. They will vote on the deal on May 4.
The rand, which has lost about 7.7% of its value against the dollar since the start of this year, was also hit by the resurgence of emerging market jitters in the wake of fresh financial problems in Argentina and Brazil and may fall further.
Sentiment was dealt another blow by weekend media reports that police were investigating possible threats against the life of President Thabo Mbeki from within the ruling African National Congress.
The currency, also at fresh lows on major crosses, has depreciated about 4.9% on a trade weighted basis this year after losing more than 12% of its value in 2000.
Although it had firmed to 8.1516/dollar by 16:15, analysts predicted further weakness ahead – which could have grave implications for the central bank’s inflation target, in turn raising the risk of a hike in interest rates.
The rand closed at 8.1650 on Friday after testing its previous 8.1850 low reached last week. ”If the rand remains under pressure, the risks are higher for inflation and that the Reserve Bank might find it difficult to meet its (inflation) target,” said Noelani King, an economist at PSG Investment Bank.
The central bank hopes to engineer inflation – as measured by the CPIX index – to within a 3%-6% band by 2002. CPIX, which excludes volatile home loans, slowed to 7.5% in the year to March after a 7.7% February rise.
Analysts said the rand’s break through its previous low of 8.1850 – which was seen as key support – left the currency vulnerable to test 8.25 against the US dollar.
The rand has already been buffeted by concern that partial privatisation of telecoms operator Telkom and mobile operator M-Cell may not go through this year, which would deprive the market of hard currency inflows.
”The rand is likely to remain vulnerable in the short-term as international markets remain unsettled. In the long term it will pull back if the Telkom IPO and the sale the government stake in M-Cell go through,” said Nedcor economist Magan Mistry.
Capital inflows are seen as critical to the central bank’s ability to unwind its so-called forward book, built up at the height of the 1998 emerging markets crisis in an attempt to shield the rand from speculative attacks.
The forward book, which measures its foreign exchange exposure on forward markets, has been stuck at $14.5bn since October last year. The central bank must buy dollars whenever the rand firms to cover the loss-making position.
The rand’s latest plunge also rattled the debt market, with the yield on the most liquid R150 government bond, due 2005, jumping 10.5 basis points to 11.74%, while the longer dated R153 due 2010 also rose by 9.5 basis points to 12.35%.
Traders said nervousness ahead of the release on Wednesday of March producer inflation data was also taking its toll, despite the fact the annual increase was expected to slow to 9.0% from a 9.1% increase in February. – Reuters