By Kouthar Sambo
The rand dropped to a whopping decline in three years, and local currency bond rates increased as investors are concerned over South Africa’s deteriorating economy coupled with the ongoing energy shortfall. South Africa’s rand saw the worst decline among major developing markets on Wednesday, falling as high as 1.1% to R18.8368 per $1 – its lowest level since May 2020.
“At the moment the rand is much weaker than usual, so it’s always undervalued. I think the most recent reason has to do with the American ambassador to South Africa suggesting that South Africa exported arms to Russia. And that of course resulted in a negative swing against the South African currency,” said economist Dawie Roodt who went on to cite other additional reasons such as the energy crisis along with the general poor performance of the South African economy that serves as contributing factors, therefore leading to the rand growing weaker.
“The American inflation data came out and the data was a little better than expected, which supported the US dollar itself, and if the dollar goes up, other thing goes down. But at the moment, the sudden weakness in the currency has got to do with political issues,” he added.
Surely, the situation has a detrimental effect on South Africans on the ground, explains Roodt, as the South African currency should be perceived as a “shared price.” He further painted the analogy by saying that when a shared price is brought under pressure, the rest of its shareholders are at a financial loss.
“That’s exactly the same with us – the rand loses its value and we as South Africans are poorer today than what we were yesterday. The result is upward pressure on inflation, and that means that the reserve bank will have to increase interest rates even further and that in itself will have a negative impact on economic growth as well. The result of all of this will be high advertisers, and high inflation, which will also contribute to high-interest rates as well,” explained Roodt.
“The point is that the government is walking in one direction and doing a lot of damage to the economy, while the reserve bank is trying to salvage what can be salvaged. As long as those institutions are working in opposite directions, I’m afraid the economy is going to suffer. We need to fix political issues in South Africa first,” he stated.
Photo: Unsplash
