Contrary to the hopes of exporters, but in line with official policy, Metropolitan asset manager economist Rejane Woodroffe expects the rand to be stronger next year than this year.
Her forecast is for the rand to weaken to R8,30 per dollar at the end of this year from the current R7,30 per dollar, but then strengthen to R7,80 at the end of next year.
Her call on the rand is based on lower commodity prices in the short term as developed countries’ industrial production growth wanes, while next year she expects a change in foreign investor perceptions to boost the rand.
So far this year foreigners have sold a net R2,202-billion-worth of South African bonds after buying a net R250,5-million-worth of local bonds in 2002.
In the year to date foreigners have sold a net R655,388-million-worth of South African shares compared with net sales of R2,835-billion in the same period last year.
“We believe that the current sell-off in the United States bond market is overdone, and equally, that the US equity market is overbought. Many structural problems for the US economy must still be overcome, and we believe that as the US economy sinks again, so investors will look to other markets to boost returns.
“As South Africa is one of the few investment grade assets that still offer double-digit returns, I am sure that we see more than enough foreign inflows to cover a widening current account deficit,” Woodroffe said.
A newly virile South African rand shrugged off the news in early August that the government had repaid more than R4-billion in a foreign loan.
In December 2001, the rand reached a record worst level of R13,86 per dollar, R20,0866 per pound and R12,4790 per euro. It finished 2002 at R8,59 per dollar, as the rand was the best performing currency against the dollar in 2002.
On April 30, the rand reached its best level so far this year of R7,05 per dollar.
The rand averaged R8 per dollar in the first half of the year after briefly moving above R9 per dollar in January, and has so far averaged R7,50 per dollar in the second half.
The South African Reserve Bank last week published new real effective exchange rates, which excluded Zimbabwe, showing that the latest available data for February is the same as December 2000.
The February 2003 value is 80,58, where 100 is the value in 1995. In December 2000, the value was 80,50. This means that compared with 1995, the rand is still some 20% undervalued on an inflation-adjusted basis.
The record monthly low for the data since 1990 is December 2001, when the monthly average was 60,34, which means that the real rand was 33,5% stronger in February this year.
The Reserve Bank and the Treasury have consistently said this year that the rand remains undervalued and some economists expect the rand to go below R7 per dollar before the end of the year, yet the majority of economists expect the rand to weaken to above R8 per dollar by the end of the year. — I-Net Bridge