February 2013: Understanding the rand/dollar exchange rate helps us to predict the impact on our industry and plan ahead.This is the word from Bertus after a review of the February report in Nedbank Capital’s “Monthly Insights” series.
Nedbank Capital reported that the rand continued to depreciate against the US dollar in January, in continuation of a long-term trend.The highest exchange rate over this period was R9.30/USD. Nedbank predicts that this rate will be consolidated at about R9.00/USD, with a range of between R8.57/USD and R9,30/USD in the medium term.
A sustained weak rand will probably lead to higher inflation, limiting the Reserve Bank’s ability to ease interest rates further. This raises the threat of a “stagflationary” scenario – rising inflation in a stagnant economy – which can threaten business sustainability.There are several factors affecting the rand/dollar exchange rate. These include worries about the labour unrest spreading from the mining sector, and rising politicking and accusations of corruption among political parties ahead of the 2014 national election.
The downgrading of South Africa’s credit rating by international agencies, a widening SA account deficit and the slowing down of foreign portfolio flows into SA assets, are also factors.
“We are keeping a close eye on the exchange rate as this has such an impact on every aspect of business in South Africa - including of course, our own industry,” says Bertus. “Understanding the exchange rate has helped us in the past, and will doubtless do so again. Knowledge really is a form of power.”