A proposed 16 cents reduction in the fuel price was an indication that the rand’s recovery was helping to combat rampant inflation, chief economist at Sanlam Investment Management, Jac Laubscher, said on Friday.
”However, we are waiting for evidence of prices on other imported products falling,” he said.
Laubscher said he saw confidence growing in a stronger rand, favourably influencing investment from both overseas and local sources.
”With a more stable currency and the expectation that the SA Reserve Bank will remove its net open forward position in the next 12 months, this will pave the way for further relaxation of exchange controls, even though I do not think that it will totally disappear just yet.”
The recovery of the rand against the US dollar has vital implications for business and consumer confidence in South Africa.
Laubscher said exports remained attractive and the proposed fuel price reduction would help reduce inflation.
”There is renewed confidence in the rand and the abnormal foreign exchange liquidity level has dropped, the market has adjusted and trading has returned to a regular pattern.
”As normality returns on the back of the currency’s recovery — the rand is now trading at its level in late November 2001 before its sharp fall and importers take less forward cover, plus the repatriation of exporters’ dollars (now their six months’ grace period is over) –there’s a lot more stability and confidence.”
Laubscher said the rand’s strengthening was part of the turn in the global cycle, which was more in South Africa’s favour, particularly in the commodities-driven arena where the country was strong.
”The price of gold breaking solidly through the $320 an ounce ceiling and the precious metal again being recognised as a safe haven –particularly in the aftermath of September 11 and the Middle East and Pakistan/India crises — has also helped the rand recover.”
He said the weakening of the dollar against most currencies — down seven percent since January 2002 — on investor doubts on US asset returns had also given the rand impetus.
Domestically, South African interest rate hikes had helped reduce liquidity in the domestic money market, making it too expensive to hold short positions in the rand and further assisting the rand’s recovery.
For the remainder of 2002 Laubscher was optimistic, but cautious.
”Should the dollar recover significantly, the rand might weaken again later in the year. Another rise in interest rates should not slow Gross Domestic Product (GDP) growth as there were other factors supporting it — a growth rate of 2,7% in GDP is forecast for 2002.
”But exports are still attractive, since the rand has some way to go to return to the average R8,75 to the dollar level that prevailed in 2002. weakening of the rand will, of course, again strengthen the exporters’ cause,” – Sapa