Cape Town | Monday
INITIAL reports from Zimbabwe on the progress of presidential elections underway in that country are ”most encouraging”, and local markets are likely to reflect this when they open on Monday. This is the view of Econometrix chief economist Dr Azar Jammine, who says this is good news for the rand.
Speaking on SABC’s Newsmaker programme on Sunday, he said markets would open ”cautiously positive” this week.
”I think the markets were afraid there might be a violent election as a result of intimidation at polling booths.
”This first step of the election — and I must emphasise it is a first step — has gone off very well.
”I think the markets will open cautiously positive tomorrow (Monday), and the rand will strengthen.”
He stressed that it was ”still early days” in Zimbabwe’s election process, and said the real crunch could come when results were announced.
”There are fears that if the MDC (Movement for Democratic Change) wins, that you will see violence erupting and possibly even a military coup d’etat by (President Robert) Mugabe’s supporters.”
However, Jammine said he was personally not convinced this would happen.
”But this is what the markets actually fear,” he warned.
Turning to the commission of inquiry into the fall of the rand, which started a week ago in Johannesburg, he said his impression was that those who had testified were ”clearly giving their own point of view”.
”One has to be very careful because… most of the people giving evidence are linked to banks, financial institutions, the Reserve Bank, Treasury, and other multilateral agencies, and therefore one is afraid that each one is talking to his own book.
”The commission will have to dig a little deeper beyond those views.”
He thought the commission would have a preliminary report ready by April, but was not sure it would find any party guilty.
However, the inquiry would give both government and the Reserve Bank direction on how to proceed.
Jammine last week told the commission that Reserve Bank governor Tito Mboweni’s frequent statements that the bank would not intervene in foreign exchange markets to support the rand had helped the currency’s fall.
He said that under Mboweni’s leadership, the SARB was obliged and willing to follow the government’s policy of inflation targeting, which meant the bank no longer had any interest in managing the level of the exchange rate.
”This, combined with the low level of reserves and the commitment to eliminating the net open foreign position, led speculators to believe that there was relatively little risk in their taking a position against the rand,” Jammine told the inquiry.
He told Newsmaker on Sunday that if the SARB wanted to avoid ”the kind of one-way bet that speculators banked on in the last few months of last year”, it should ”keep the markets guessing just that little bit”.
”It failed to do that — both with its determination to eliminate the net open forward currency position, and with its stated objective of never intervening.”
Speculators had then said ”What a wonderful target”, and had aimed at the rand.
On the effect of politics on the rand, he said: ”Politics affects sentiment, and in that sense does affect the way people view the rand.”
However, the rand’s drop over November and December last year was brought about ”not by politics, not by economics, but by speculation”.
On exchange controls, Jammine said his view was these should be dropped.
”If they were not able to stop such a fall (in the rand), what use do they have at all?
”We’ve seen substantial outflows, purchases of dollars, right through the last two years; I don’t think exchange controls have helped to stem that,” he said. – Sapa
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