We have seen extreme weakening of the Rand against the Dollar in recent weeks, driven to a large degree by traders’ expectations that the US Federal Reserve Bank would increase its interest rates.The increase of this lending rate has an enormous impact on our economy and the strength of the rand – which, of course, has a major impact on our own industry. This is because an increase in the Fed’s lending rate means that it can offer higher returns at lower risk to investors in the US, and subsequently we could see an outflow of foreign investments from South Africa.South Africa would then need to find alternative foreign investment and or increase its interest rates to encourage investors to remain here. However, an increase in our own interest rate would dampen local growth, as the cost of borrowing money locally would increase.However, last week the Fed signalled that it would not increase its lending rate in June, and an increase would not be as great as was feared. This allayed fears of a negative impact on our economy and, for the meanwhile at least, brought some relief to the Rand.US Fed chairperson Janet Yellan said that concerns for international markets were part of the reason for not increasing the lending rate. “We look very carefully at what’s happening in the global environment,” she said. “We realise that our own policies affect performance in the rest of the world, and that performance has an effect on us…”The Fed’s announcement was predicted by Nedbank Chief Economist Dennis Dykes in an interview with the Dolphin Bay Brief last week. “In my view the Fed might not raise interest rates as quickly as anticipated, because they don’t really have reason to do it soon. They have inflation under control, and American exports would be hurt by the move,” he said.The Fed’s decision led to a slight firming in the Rand’s value, which was previously at a 13-year high of R12.40 to the dollar, then strengthened to R12 after the announcement. However the Rand’s value subsequently dipped back to R12.30, before strengthening again early this week.“There have been tremendous fluctuations in the Rand’s value, and our customers would do well to become comfortable with some uncertainty in the market,” Bertus noted.“We are doing all that we can to mitigate the fluctuating value of the rand, and are committed to keeping our prices stable as far as possible,” says Bertus. “However, we want to remind our customers that a large proportion of Dolphin Bay’s raw materials are imported, which leaves us very exposed to this fast-fluctuating exchange rate.”The market was braced for the worst-case scenario, which, as it turned out, did not come to pass. As Dennis predicted: “We could see further relief for the Rand later in the year.”We will continue to keep our customers informed of how major local and international movements in the market are affecting our economy and our industry.