The rand looks unlikely ever to recover
Sarah Bullen
The fall of the rand is terminally depressing. It is like a light drizzle that just keeps on coming until a particularly bad shower reminds us that it’s actually still raining.
South Africans are going to have to face up to the reality of living with a currency that has lost ground and looks unlikely ever to recover.
We all waved goodbye to the R6 to the dollar level, thinking we would see it again on the rebound. Now the departure is looking decidedly permanent and the currency could be moving on to tackle its biggest hurdle yet: R10 to the dollar.
Overseas travel will be an unavoidable casualty. Airfares are bound to rise and the cost of foreign exchange will make most think twice before travelling to destinations where the US dollar rules. South Africans with tickets already booked for December are going to have to swallow hard.
While the travel industry may move its focus to more cost-effective destinations, they are becoming increasingly hard to find. Over the past two months the rand has fallen against all currencies – including emerging market currencies, with the exception of Brazil. Even the Botswanan pula has appreciated against the rand over the past few weeks, making travel in Africa relatively more expensive.
On the domestic economic front the effect of the weak rand may be offset by the strong fundamentals that will keep inflation in check, but the cost of imports will rise significantly.
The question that no one wants answered is “how low can it go”? Cyclical analysts and economists continue to say their outlook for the rand is bullish, but their guesses are looking more and more like a game of pin-the- tail-on-the-donkey. A Reuters poll of economists put the consensus forecast for the year-end at R8,92 to the dollar. Last week’s slide to a low of R3,38 has blown that figure out of the water.
The fall of about 21% this year has been repeatedly blamed on speculators. The local market is a sophisticated, liquid and open one, rated by the Bank of International Settlements as the most traded emerging-market currency second to the Singapore dollar. The openness of the market is comparable to First World economies. When the tide turned, that openness became vulnerability and exposure.
The South African Reserve Bank’s announcement last weekend that it is ready to take “firm steps” against irregular trading in the currency was an attempt to put a brake on the portion of the rand’s slide that can be written off to speculation. The tactic backfired somewhat and is being partially blamed for a 30c fall on Tuesday.
There is a consensus among commentators that speculation alone has not caused the rand’s fall and that there are other contributing factors. But here the conversation gets vague. They cite global emerging market turmoil, regional issues stemming from our troublesome neighbour Zimbabwe, the slow growth of foreign direct investment and the residual foreign net open forward position.
But there is a sense of bafflement among economists, like there is no real reason, and yet it is not really a surprise. Nedcor senior economist Magan Mistry describes the fall as “defying all logic.” He says that while global and regional factors could point to a downturn in the rand, the strong domestic fundamentals suggest the rand should be a stable currency.
We all want to believe it, but we are still waiting for the rand to show up.